Prices of Treasuries and Mortgage Backed Securities (MBSs) dropped (rates up!) today as China expressed a concern about the decline in the value of the US dollar. This has some traders concerned that China may begin selling the US bonds they hold. Additionally, If the dollar continues for drop in value, the Chinese will most likely purchase fewer MBS. This will cause bond and MBS prices to fall and yields and mortgage rates to rise. Meanwhile, stock prices have been climbing the past few of days.
The Feds again have delayed the Term Asset-Backed Securities Loan Facility (TALF), a program intended to revive consumer lending and unfreeze credit markets. The credit crunch gripping the financial system is causing demand throughout the world to slump as consumers and businesses pull back. This is raising the risk that consumer spending will fall again after stabilizing the last couple months. Additionally, as home values and stock prices continue to fall, U.S. household wealth fell over $5 trillion last quarter and is putting a damper on consumer spending and economic growth.
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