30 Year Fixed Mortgage Rate Vs. 30 Year U.S. Treasury Yield

This page is created to monitor the 30 year Conventional Fixed Mortgage Rate Vs. 30 year U.S. Treasury Yield.

There is an obvious historical correlation here. The thing to watch here is that the mortgage rate (blue chart) should always be higher than the treasury yield (green chart).

When this is not the case, U.S. treasury yields should decline / mortgage yields should increase.

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Gold Vs. 10 Year U.S. Bond Yield

This page is created to monitor the Gold Price Vs. Bond Yields.

Historically, when the 10 Year U.S. Bond Yield declines (blue chart), gold will have an up move (red chart).

The blue chart is actually the equivalent of the TIPS yield (Treasury Inflation Protected Securities), which is the Treasury Yield of U.S. Bonds minus the rate of expected inflation. The correlation between TIPS and gold is best visible when we invert the TIPS yield. Source: blog.yardeni.com

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China Boosts U.S. Treasury Holdings

China buys more U.S. treasuries to keep the yuan from rising.

Chart 1: China U.S. Treasury Holdings

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Correlation: 30 Yr. Treasury Yield Vs. 30 Yr. Mortgage Rates

Just wanted to add another couple of correlations to my collection. We will learn about fixed and adjustable rate mortgages. These are correlated against treasury yields and fed funds rate respectively.

1) Conventional (Fixed) Mortgage Rate Vs. Treasury Yields

As you can see mortgage rates are always higher than treasury yields because U.S. treasuries are considered much safer than mortgages.

Chart 1: 30 Yr. Treasury Yield Vs. 30 Yr. Mortgage Rate

2) Adjustable Mortgage Rate Vs. Fed Funds Rate
Adjustable Rate Mortgages on the other hand are linked to the Fed Funds Rate.

Chart 2: 1 Yr. Adjustable Rate Mortgage Vs. Fed Funds Rate

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China Ups U.S. Bond Holdings

Surprisingly, China bought even more U.S. bonds and is now again the champion, just before Japan. Almost every foreign country increased its U.S. bond holdings in December 2012.

And now realize they are making a loss on that purchase as yields went up.

Chart 1: China U.S. Treasury Holdings

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Foreign Investors Continue to Buy U.S. Treasuries

It is expected: foreigners continued to increase their positions in U.S. treasuries. Foreign holdings of U.S. debt hit $5.46 trillion from $5.292 trillion the previous quarter (Chart 1). That's an increase of 3%.

$16.28 trillion in debt is now partly in the hands of foreigners. The percentage = 5.46/16.28 =  33.5% (Chart 2).

As long as foreigners are willing to hold U.S. debt, there is no problem at all...

One word of caution though, the interest on this debt will be sucked out of the U.S. economy and go to the foreigners.

Chart 1: Federal Debt Held by Foreigners

Chart 2: Federal Debt Held by Foreigners

China increased their U.S. treasury holdings to $1.156 trillion in September 2012 (Chart 3).

Chart 3: China U.S. treasury holdings

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China U.S. Treasury Holdings Steady in June 2012

Nothing special has been reported in Chinese U.S. treasury holdings. The amount of U.S. treasuries held by China are almost unchanged at $US 1.164 trillion.

http://www.china.org.cn/video/2012-08/16/content_26252410.htm

Chart 1: Chinese U.S. treasury holdings

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The Status on China

We already know China is slowing down, because their imports of key commodities have been going down lately. I summarized this already in this article. We saw that industrial commodity imports were declining, while gold imports and U.S. treasury buying skyrocketed. I believe China has enough tools to keep their real estate and stock markets from falling. To find out how, go to my analysis here.

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China U.S. Treasury Holdings March 2012

Time for a China U.S. treasury holdings update. Apparently the February release of China's holdings of U.S. bonds was revised downward from $US 1.17 trillion to $US 1.155 trillion. But in March, China recorded the highest amount of treasury holdings, namely $US 1.17 trillion (Chart 1).

So China isn't only buying record amounts of gold, but at the same time is continuing to buy U.S. treasuries. Where on earth does China get all this money from... Right, because of production and savings.

Chart 1: China U.S. treasury holdings (billion USD)

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Velocity of MZM slowing down

In one of my previous articles I monitored the velocity of MZM, to see if treasuries were likely to go up or down. The new numbers of velocity of MZM are out today at 1.434 (Q1 2012), down from 1.451 (Q4 2011). To see what this means for your portfolio, go to: Velocity of MZM going down.

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