Could Rising Bond Yields Deflate the Housing Market?
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What is the main topic discussed in this episode?
Your Money Briefing. Money and market stories from The Wall Street Journal.
I'm J.R. Whalen in New York. A significant rise in U.S. bond yields is the result of a booming economy, but that rise could actually put a crimp in the housing market and in turn overall economic growth. Details in a moment. First, these money headlines. Owners of restaurants, hotels, and other seasonal businesses are scrambling for the second year in a row, as limits on visas for temporary foreign workers in a tight U.S. labor market make it difficult to staff up for the summer rush. The gap between visa supply and employer demand is the culprit. It widened last year after Congress declined to renew an exemption for
What is driving the recent rise in 10-year Treasury yields?
for returning workers. That forced firms to request new visas for workers who had come to the U.S. under the program but had left the country after their seasonal employment ended. For this summer season, businesses filed requests for more than 81,000 workers on January 1st, That was the first day possible. The flow of applications was so great, the Department of Homeland Security, which approves the petitions, was required to use a lottery, and selections were made from the first 2,700 petitions. In a riverfront estate assembled by the late AOL co-founder James Kimsey, which includes a massive home he built in an adjacent Frank Lloyd Wright-designed house, is asking nearly $63 million. The Northern Virginia estate is the most expensive residential property on the market in the Washington, D.C.
area. Kimsey built the roughly 24,500-square-foot, six-bedroom main house after buying the property in 1999 for about $7.6 million.
How could higher bond yields affect big-ticket purchases like homes and cars?
Kimsey retired as chairman of America Online in 1995, focusing on philanthropy and traveling from then on. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. Here's the good news. The economy continues its steady growth. Now the not-so-good news. That growth, coupled with rising inflation, is pushing the yield on the benchmark 10-year Treasury note higher, and some see it as potentially putting the brakes on that growth. And Wall Street Journal reporter Daniel Kruger is here to discuss. So, Daniel, we're seeing the yield on the 10-year at levels not seen in about seven years?
Yeah, that's right. It's gone up a fair amount since the start of the year when the government passed that big tax cut. And that tax cut did a couple of things. It made a lot of people a lot more optimistic about the economy, and it made people have a lot more money in their hands. And that spurred a certain amount of expectation that prices would go up, inflation would go up, and that leads to higher borrowing costs.
And the specific concern here about how economic growth could be impacted, just spell out a bit how that could trickle down to people like homebuyers.
You're borrowing for good reasons usually, a new home, a new car, things that you feel optimistic about. And when these things become more expensive, they're harder to do.
So it's really big ticket items are affected.
Yeah, mostly. Mostly big ticket items. Things that you would do a certain amount of saving for that would be big expenses that are, in one way or another, a little bit life-changing.
It's interesting that one economist you spoke with said that if higher costs for borrowers continues to put a crimp on new home sales specifically, the Federal Reserve could be influenced to put the brakes on interest rate increases.
Why might rising mortgage costs slow new home sales and influence the Fed?
Right. They want to make sure that the economy doesn't overheat, but they also don't want to tip the economy into a recession. And so one sign... of the idea that they might be going too fast in terms of slowing the economy would be if you see a real, you know, break on home purchases. That's something that they don't want to do unless, you know, it's absolutely necessary. And right now the economy has been growing pretty well and it doesn't seem necessary. They'd like to prevent that if they could.
And the rising 10-year yield is impacting Wall Street investors also. They're selling shares and utilities and real estate companies, which ordinarily would pay out healthy dividends.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:00–0:42
2
What is driving the recent rise in 10-year Treasury yields?
0:42–1:40
3
How could higher bond yields affect big-ticket purchases like homes and cars?
1:40–3:29
4
Why might rising mortgage costs slow new home sales and influence the Fed?
3:29–4:16
5
How are investors reacting to higher Treasury yields and what sectors are selling off?
4:16–5:47
6
How have currency moves, especially a stronger dollar, contributed to rising U.S. yields?
5:47–6:05
Speakers
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