Good Thursday AM,

 

Stocks are taking a breather. They need it. Treasuries are down a bit while Mortgage Bonds are up. We are range bound and it appears we may stay this way for a while. We currently sit very near the top of the range which gives us more downside than upside making the higher probability decision is to lock. The news was more bearish for bonds than it was bullish. Housing Starts and Philly Fed beat expectations my a large margin. Jobless claims however, once again missed expectations.

 

A Wall Street Journal piece shared that Americans are holding on to their homes longer, and it is costing would-be home buyers. The length of time U.S. homeowners stay put has been rising steadily, a big reason why the inventory of homes for sale is at record lows and prices are near all-time highs.

 

The typical homeowner in 2020 had remained in place for 13 years,  well ahead of 2010’s reading of 8.7 years, according to a new analysis by real-estate brokerage Redfin Corp. About one in four U.S. homeowners has lived in the same home for more than 20 years, the study showed. Concerns about Covid-19 had the opposite effect among potential sellers. A fear of strangers entering their houses during the pandemic prompted some people to cancel or delay their plans to list their homes. Those thinking of selling have also been reluctant to act for other reasons, from concerns about finding a new house in a competitive market to ultralow interest rates that make it appealing to refinance and stay put. Homeowners staying in their residences longer is contributing to the worsening shortage of homes on the market. The 1.28 million homes for sale at the end of November was down 22% from November 2019, according to the National Association of Realtors, and inventory sits near its lowest level in decades. At the current sales pace, there was a record-low 2.3-month supply of homes on the market at the end of November.

 

And, I am finding a new appreciation for Bloomberg News. Not actually the news but some good insight from the analysis desk. They have been sharing some great material on bonds.
I would, if you read nothing else from today’s piece, read this:

 

At her confirmation hearing earlier this week, Treasury Secretary nominee Janet Yellen was asked whether the government should consider issuing ultra-long dated bonds, perhaps going out to 50 years. This idea pops up every once in awhile, because people have this intuition that the government should take advantage of low rates by locking them in for the long term. It sounds great. You borrow tons of money that you pay back over 50 years, and spend it all today on new roads and broadband and healthcare and stuff like that.

 

The problem is that once again, this logic rests on the premise that the government is like a money-constrained household. Households, of course, are in fact doing exactly this, refinancing their mortgages at low rates in order to reduce monthly payments. But the government, as the issuer of the U.S. dollar, doesn’t face the same consideration or have the same priorities. Why would the government need to borrow and build up a huge pile of cheap cash now, when it can literally create cash at the snap of a finger?

If anything, you could make the argument that issuing more long-dated debt is not only unnecessary, but would be bad for the economy. After all, one of the ways QE supposedly works is that by purchasing Treasuries with reserves, the Fed is taking duration out of the market. Long-dated Treasuries would be doing the exact opposite, adding duration to the market, working cross-purposes to QE.

 

It’s conceivable that there are some reasons why going longer makes sense. Maybe they would have some liquidity benefit, or perhaps there are some types of institutional buyers of government debt (like pension funds or insurance companies) for whom these instruments would be useful for hedging purposes or something like that. But if you’re thinking in terms of spending and stimulus, there’s no need. There’s only one constraint that matters when it comes to spending more on broadband and healthcare and new roads, and that’s whether a bill can get 51 votes in the Senate.

 

Please remain safe and healthy, make today great.