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April 2006- Yields on 10-year US Treasuries
have risen above 5pc for the first time since 2002 on heavy selling by big institutions,
sending tremors through the US mortgage and corporate credit markets. The US 10-year bond
is the key instrument used to price borrowing in the American economy, with ripple effects
through the global system. Yields have risen sharply by 0.6 percentage points so far this
year, reaching 5.036pc in New York. The powerful upward draft has lifted German, French
and other eurozone bonds in step, driving up the cost of borrowing on the capital markets.
Analysts said the spike in yields is chiefly caused by an exodus of Asian
investors, who hold a huge chunk of the US national debt.
A lot of money is being repatriated into the Japanese equities market," Japanese
holdings of foreign bonds has fallen by $70 Billion so far this year, according to data
from Japan's finance ministry. This year's sudden rise in 10-year yields risked tipping
the US economy into a downturn. This could be the catalyst for a sharp correction in real
estate prices and wean consumers off their credit binge. The housing boom is now the
mainstay of the US economy.
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