Summary
- With the Fed stopping QE, stopping the purchase of new bonds and before long will begin letting maturing bonds run off.
- The expectation is that the Fed will raise rates, which will have a knock on effect in just about all rate products including mortgages.
- The underlying fundamentals of the housing market appear to be super strong.
Originally published on February 22, 2022
I came across this fascinating read about #cryptoinvesting by Dan Morehead who showed (See Chart 1) that Treasury and Mortgage bonds were overvalued by some $15 Trillion.
Chart 1
With the underlying message being that with the Fed stopping QE, stopping the purchase of new bonds and before long will begin letting maturing bonds run off – who knows, perhaps even sell bonds into the open market; how will the market respond? Will there be anyone to replace the Fed as a natural buyer? To what extent? And how will the market reprice?