5 ms·

The problem is that in a scenario of rates going up, both houses and general stock investments will go down together. They rarely diverge.

fshbbdssbbgdd 5y ago
If rates go up to X+5, then I ought to be able to find bonds that pay X+5, no?
- bogomipz 5y ago
  No. 30 year mortgages and 10 year treasuries move in unison but they are not the same rate. You can see this on the first graph here: https://www.thebalance.com/treasury-note-and-mortgage-rate-relationship-3305734 https://www.thebalance.com/treasury-note-and-mortgage-rate-r...
  - fshbbdssbbgdd 5y ago
    Treasuries are some of the lowest-yielding bonds out there.
    - bogomipz 5y ago
      Yes and treasures are the only bonds that move in lockstep with 30 year mortgages. When people talk about the correlation between bond yields and mortgages those are exactly the ones they are referring to. US Treasuries also are considered among the safest, least risky assets out there. This is true globally and has been for a very, very long time. This is all succinctly explained in the link I posted above. Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.
      - deleted 5y ago
        [deleted]
      - fshbbdssbbgdd 5y ago
        > Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5. Indeed, interest rates are inversely related to bond prices. And bond prices are inversely related to yields. Yields and rates are highly correlated. In fact, the way banks finance mortgages is by selling bonds. The market rate they can get on those bonds determines the rate they can offer to homeowners. So of course these rates move in tandem.
      - lottin 5y ago
        > So no, when rates go up to x+5 you will never be able to find bonds that pay x+5. What? If the current rate is x, this means that this is the rate a bond being issued right now is paying. If the rate goes up to whatever, it means that bonds being issued right now are paying whatever.
        bogomipz 5y ago
        No, there is an inverse relationship between between interest rates and bond prices. This is an axiom in the bond market. See: https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/ https://www.investopedia.com/ask/answers/why-interest-rates-...
        lottin 5y ago
        Yes, I know that. We are talking about rates.
        bogomipz 5y ago
        Rates on bonds are meaningless without considering yield.
        fshbbdssbbgdd 5y ago
        Rate and yield are the same thing. Whenever I’m paying a rate, somebody else is earning a yield. Whenever I’m earning a yield, someone else is paying a rate.
        bogomipz 5y ago
        They are related but they are certainly not the same thing.
        lottin 5y ago
        Yield is a normalised rate of interest, so that bonds of different characteristics can be compared. When people say a bond pays certain interest rate, they mean the normalised rate, i.e. the yield, otherwise they would make clear they're talking about the "nominal rate", which is different. Therefore in most contexts, rate and yield are the same thing. Anyway, the thing is if the spot rate is x% you will certainly be able to find bonds in the market that pay x% interest (=yield), regardless of the fact that a bond's yield and price are negatively correlated (an irrelevant fact, for the purposes of this discussion).
- lottin 5y ago
  Yes.
- throw123123123 5y ago
  If you had bonds before they went up, your bonds will crash. If you buy them after interest rates are up, it means you were in cash before and uninvested. Im not sure I see the point in finding higher yielding bonds. Also they will have higher risk, its not "free" to have higher rates.

fshbbdssbbgdd 5y ago

If rates go up to X+5, then I ought to be able to find bonds that pay X+5, no?

bogomipz 5y ago
No. 30 year mortgages and 10 year treasuries move in unison but they are not the same rate. You can see this on the first graph here: https://www.thebalance.com/treasury-note-and-mortgage-rate-relationship-3305734 https://www.thebalance.com/treasury-note-and-mortgage-rate-r...
- fshbbdssbbgdd 5y ago
  Treasuries are some of the lowest-yielding bonds out there.
  - bogomipz 5y ago
    Yes and treasures are the only bonds that move in lockstep with 30 year mortgages. When people talk about the correlation between bond yields and mortgages those are exactly the ones they are referring to. US Treasuries also are considered among the safest, least risky assets out there. This is true globally and has been for a very, very long time. This is all succinctly explained in the link I posted above. Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.
    - deleted 5y ago
      [deleted]
    - fshbbdssbbgdd 5y ago
      > Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5. Indeed, interest rates are inversely related to bond prices. And bond prices are inversely related to yields. Yields and rates are highly correlated. In fact, the way banks finance mortgages is by selling bonds. The market rate they can get on those bonds determines the rate they can offer to homeowners. So of course these rates move in tandem.
    - lottin 5y ago
      > So no, when rates go up to x+5 you will never be able to find bonds that pay x+5. What? If the current rate is x, this means that this is the rate a bond being issued right now is paying. If the rate goes up to whatever, it means that bonds being issued right now are paying whatever.
      - bogomipz 5y ago
        No, there is an inverse relationship between between interest rates and bond prices. This is an axiom in the bond market. See: https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/ https://www.investopedia.com/ask/answers/why-interest-rates-...
        lottin 5y ago
        Yes, I know that. We are talking about rates.
        bogomipz 5y ago
        Rates on bonds are meaningless without considering yield.
        fshbbdssbbgdd 5y ago
        Rate and yield are the same thing. Whenever I’m paying a rate, somebody else is earning a yield. Whenever I’m earning a yield, someone else is paying a rate.
        bogomipz 5y ago
        They are related but they are certainly not the same thing.
        lottin 5y ago
        Yield is a normalised rate of interest, so that bonds of different characteristics can be compared. When people say a bond pays certain interest rate, they mean the normalised rate, i.e. the yield, otherwise they would make clear they're talking about the "nominal rate", which is different. Therefore in most contexts, rate and yield are the same thing. Anyway, the thing is if the spot rate is x% you will certainly be able to find bonds in the market that pay x% interest (=yield), regardless of the fact that a bond's yield and price are negatively correlated (an irrelevant fact, for the purposes of this discussion).
lottin 5y ago
Yes.
throw123123123 5y ago
If you had bonds before they went up, your bonds will crash. If you buy them after interest rates are up, it means you were in cash before and uninvested. Im not sure I see the point in finding higher yielding bonds. Also they will have higher risk, its not "free" to have higher rates.