/perspectives/global-cio-outlook/restricted-room-for-higher-rates

Restricted Room For Higher Rates

Interest rates should rise through 2013, however, the level to which they can increase will be limited by the Federal Reserve’s ongoing attempt to stimulate activity in the housing market.

January 02, 2013    |    By Scott Minerd

Global CIO Commentary by Scott Minerd

“As the U.S. economy continues to expand in 2013, long-term interest rates should continue to rise from their present levels. There appears to be a cap, however, on how much rates will be able to rise in the near-term. Given the adverse effect of a rising interest rate environment on the housing market, the Federal Reserve will almost certainly seek to keep long-term rates at a modest level for the foreseeable future. As a result, it would be difficult to conceive of the 10-year note rising above 2.25% within the next few years. Although an increase to 2.25% may not seem significant, that is more than 20% higher than what the 10-year note is currently yielding. Concerning the effect of rising rates on economic activity, credit spreads are likely to continue to tighten despite any rises in rates, meaning the impact of rates backing up will be fairly muted.”

Changes in Interest Rates and Home Mortgage Applications (1990 – Present)

Mortgage applications have historically been highly sensitive to changes in interest rates. The chart below highlights the relationship between changes in U.S. 10-year Treasury yields and home mortgage applications. Typically, periods of rising interest rates hamper mortgage applications, and consequently reduce the volume of home sales. Given this relationship and the Fed’s emphasis on supporting the U.S. housing sector, it appears unlikely the Fed will allow interest rates to rise materially in the near-term.

Foreign Markets May Offer More Growth Potential

Source: Mortgage Bankers Association, Bloomberg, Guggenheim Investments. Data as of 4Q2012.


Economic Data Releases

Solid Employment and Housing Data Overshadowed by Fiscal Cliff Concern

  • Recent labor market data was encouraging, with initial jobless claims falling to 350,000 for the week ending December 22nd. This reduced the four-week moving average to a four and a half year low. Continuing claims also fell. New home sales rose 4.4% MoM in November to 377,000, while pending home sales rose 1.7%, both reaching the highest levels since April 2010. However, the positive employment and housing data did not translate to an improved consumer sentiment, as the December Conference Board Consumer Confidence dropped for a second month to 65.1, likely reflecting concern over the Fiscal Cliff. The December ISM manufacturing index rose more than expected to 50.7 from a three-year low in November, with improvements in regional manufacturing indices in Chicago and Milwaukee.

European Manufacturing Continues to Contract, China Growth Accelerating

  • Mortgage applications have historically been highly sensitive to changes in interest rates. The chart below highlights the relationship between changes in U.S. 10-year Treasury yields and home mortgage applications. Typically, periods of rising interest rates hamper mortgage applications, and consequently reduce the volume of home sales. Given this relationship and the Fed’s emphasis on supporting the U.S. housing sector, it appears unlikely the Fed will allow interest rates to rise materially in the near-term.

FEATURED PERSPECTIVES

May 16, 2018

Positioned for Choppier Waters

After several quarters of low volatility, tight spreads, and abundant liquidity, financial conditions are shifting.

May 09, 2018

Forecasting the Next Recession: Updating Our Outlook for Recession Timing

New developments in fiscal policy, the labor market, and the neutral interest rate suggest that the expansion could extend into the latter half of our recession range.

April 26, 2018

Seeking a Return on Sustainable Development

A framework for transitioning sustainable investing to an institutional asset class.


VIDEO

Forecating the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.