- Jonathan Poyer
Housing On Top? For How Long?
Interest rates drifted higher last week as the 10 year Treasury yield climbed from 2.885 to 3.08%.
Although interest rate volatility continued to grip the market, many mortgage-related securities increased in price for the week. We are seeing widespread opportunities in the market ranging from double digit yielding corporate bonds to RMBS to very high yielding residential mortgage-related equities.
The economy and financial markets remain highly uncertain. For this reason, we think it is especially important to focus on solid fundamentals, deep value opportunities, and securities with attractive yields (Benjamin Graham anyone?).
As the Federal Reserve tightens monetary policy and supply chain disruptions eventually ease, inflation pressures will likely subside, and an economic recession will be difficult to avoid. This potential “inflation driven” recession will likely have less severe and sustained impacts on the labor market than some market participants fear.
A cooling economy is also likely to assuage interest rate volatility, signs of which we have already seen in July, while not causing widespread mortgage and corporate defaults. We believe this environment would represent a relatively benign set of conditions for many real estate and mortgage investments which are currently trading at distressed prices.