Higher Rates Needed For Banks To Recharge Reserves

Rates

“Davidson” submits:

The 10yr Treas is being impacted by fears of wider conflict in the Ukraine-Russia issue. Investors have kept rates low the past 4mos as they sought safe havens for capital. One of these has been the 10yr Treasury. Rather than see rates climb as expected, we have actually seen slight declines in rates to a more recent 2.6% range. The chart below shows the average 10yr Treasury rate for March at ~2.72%. Bloomberg article provides a good overview of capital flowing out of Russia to safe havens: How Russia Inc. Moves Billions Offshore

This has continued to make bank lending to new home owners difficult as there is not a sufficient spread between cost of funds and mortgage rates to permit lending to individuals with FICO scores much below 750-those who have scores above 760 are considered Prime Borrowers. Net/net home building has been impacted by this headwind(and 3mos of harsh winter).

Nonetheless, the direction for housing employment, all construction employment and etc continues to rise but less slowly in the current tight lending climate. We do need higher rates for banks to recharge reserves and take on greater credit risks.

Markets are never fully predictable (SPDR S&P 500 ETF Trust (NYSEARCA:SPY)). One can develop reasonable expectations based on past economic behavior, but forecasting ‘what?’ and ‘when?’ must always leave some room for unexpected events such as our current Ukraine-Russia issue.

The economy remains in a positive bias and should pick-up with bank lending, i.e. higher 10yr Treasury rates.

Via: valueplays



About the Author

valueplays
Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.