subject: Seeking Refuge in the Housing Numbers [print this page] Seeking Refuge in the Housing Numbers Seeking Refuge in the Housing Numbers
This article describes housing and bonds two important aspects of the economy that are weighing on the minds of financial managers across North America. Specifically, we're focusing on the housing numbers in the Unites States and the bond markets in Canada.
Seeking Refuge in the Housing Numbers
With investors still unnerved by last year's market volatility and many on the sidelines watching the markets continue to rise, much has been written about how the American housing situation could spark another pullback.
Prices have still not recovered in many regions of the U.S., and with Interest Rates on the rise, along with pending mortgage rate resets; we could see another wave of foreclosures. Some commentary has suggested that the housing situation is linked to America's uncharacteristically high unemployment: an unwillingness to sell a home that is "underwater" on its mortgage has been blamed for "stickiness" in the labor market (normally, Americans are willing to move to where there is more work but now they are less so, since any would have to sell their home for less than is owed on the mortgage, and this is contributing to the stubbornly high unemployment rate of 10%). This could contribute to a negative feedback loop, where high unemployment keeps housing prices from recovering and keeps people from spending money, which could negatively impact the U.S. economy.
Bonds: Is the Party Over?
Yields on 10-year U.S. Treasuries plunged to nearly two-year lows in October, as investors sought safety at almost any cost. Since then, yields have bounced back up as inflationary worries have crept back into the market, meaning that bond prices have fallen.
However, we could be at a turning point in yields, since there is a prevalent demand for safe income yield in the market. Thus some corporate bonds and convertible debentures are beginning to look attractive again.
The Claymore 1-5 Year Laddered Corporate Bond ETF is a simple way to gain exposure to Canada's major corporate bonds spanning all the major sectors, with the convenience of having Claymore take care of reinvesting matured bonds into longer-term ones. Since October this ETF has pulled back close to its April 2010 low, and is now yielding 4.6%. Now that it has become cheaper, we have begun to accumulate this ETF for clients requiring safety and cash flow.
