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The Bank of Japan (BOJ) raises its interest rates by 25 bps to 0.75%, the highest level in about 30 years. The BOJ signaled its readiness for further hikes next year. It causes Bitcoin to waver, currently rising amid volatility in the Yen and the US Dollar. Bank of Japan (BOJ) Delivers Second Rate Hike
The post BOJ Hikes Interest Rates to 30-Year High, Will Bitcoin Repeat 20-30% Post-Hike Crashes? appeared first on CoinGape.
]]>The affordability of funding new houses is expected to strain the already heavily taxed small businesses and individuals.
At current 30-year mortgage rates of about 7.72 percent, it would cost a borrower about $1,429 every month to service a $200,000 housing plan, thus putting the total interest on the mortgage at about $314,325. The rising 30-year mortgage rate continues to put more strain on borrowers as the high inflation bites further into investors’ pockets. According to market aggregate data, the 30-year mortgage rate has risen from around 3 percent in 2020 to about 7.72 percent on Wednesday. Notably, the 30-year mortgage rate has been falling since the early 1980s until late 2020.
However, the 30-year mortgage rate could soon hit a double-digit figure, more so as the Federal Reserve grapples with high inflation. Additionally, the notable divide in the United States Congress on major economic issues has exposed governance gaps that could give the BRICS movement more traction. Moreover, the Republicans in Congress are not happy with the given spending and certain policies adopted by the Biden administration. Nonetheless, the Biden administration got saved in the eleventh hour on a possible government shutdown last week, which could have put more pressure on mortgage borrowers.
“It is now the first week of October, and data has been stronger,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “This morning’s JOLTS (job openings and labor turnover survey) is the biggest, baddest confirmation so far this week, and it’s pushing yields to fresh long-term highs. Pretty simple stuff, actually, even if unpleasant and unfortunate for fans of low rates.”
What Higher 30-Year Mortgage Rates Mean for Investors
The affordability of funding new houses is expected to strain the already heavily taxed small businesses and individuals. Mid-last month, the Federal Reserve put a halt on its recent rate hikes as it reduced its bond holdings, a process that has significantly reduced its balance sheet by about $815 million in the past twelve months. Notably, the Federal Reserve kept its benchmark interest rates at a range of between 5.25 percent and 5.5 percent.
The tight monetary policies are expected to help fight the high inflation and keep the United States dollar as the desired currency for global reserves. Moreover, different countries are joining hands in a movement called BRICS – led by Russia, China, India, Brazil, and South Africa – to slowly dethrone the US dollar from its long-standing status as the global reserve currency.
Meanwhile, mortgage holders are tasked with a tough time ahead as the rates could continue rising in the coming years. However, emerging funding mechanisms through blockchain technology could significantly help house buyers as they offer significantly lower interest rates.
The higher mortgage rates serve to make the supply situation worse as homeowners are unwilling to list their properties as most of them have rates around or below 3%.
Mortgage rates spiked on Monday due to a rise in bond yields. According to Mortgage News Daily, the average rate on the 30-year fixed mortgage reached 7.48%, the highest level since November 2000. The rates have almost tripled over the past couple of years following the lows experienced at the height of the Covid-19 pandemic. As of January 2021, the average 30-year rate had dropped to 2.65%. The rate has risen 29 basis points over the past week.
Matthew Graham, chief operating officer of Mortgage News Daily attributed this to investor worries that high interest rates and inflation might last longer than expected. He added that the Federal Reserve is also hoping for a deterioration in economic data before they can consider a policy shift, a move that is expected to favor short-term rates first.
“Investors just aren’t seeing the kind of deterioration in economic data that they expected […] The net effect is that longer-term rates like 10-year Treasury yields and mortgages are bearing the brunt of the market’s negative rate sentiment. This won’t change until the data forces the Fed to start talking about the first rate cut,” Graham stated.
The higher rates come on the heels of inflated home prices caused by the pandemic. In 2020 alone, rates set over a dozen record lows. This led to a homebuying spree that resulted in prices rising over 40% from the start of the pandemic to mid-2022. There was a respite at the end of the year but prices are now increasing due to high demand and very low supply.
The higher mortgage rates only serve to make the supply situation worse as homeowners are unwilling to list their properties as most of them have rates around or below 3%. For such individuals and families, moving to another home would mean more than doubling that rate.
There is a marked difference in home affordability from just a year ago when the average on the 30-year fixed was around 5.5%. As a result, an increasing number of borrowers are going for adjustable-rate loans which offer lower interest rates over shorter fixed terms. The Mortgage Bankers Association estimated the average rate on a 5-year Adjustable Rate Mortgage (ARM) to be 6.2% last week. The ARM share of applications is said to have risen to 7%, a significant change from less than 2% in 2020 when the 30-year fixed was setting record lows.
Homebuilders in the US have been trying to contend with the higher mortgage rates by either buying down those rates for short or long terms or by simply lowering home prices. Homebuilder sentiment this month has experienced a significant decline due to high-interest rates.
Mercy Mutanya is a Tech enthusiast, Digital Marketer, Writer and IT Business Management Student.
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What does this mean for Bitcoin and the broader crypto market? In a surprising move that has sent ripples through the financial world, billionaire hedge fund manager Bill Ackman recently announced that he is shorting 30-year Treasury bills. Ackman predicts that yields could soon skyrocket to 5.5%, a move he is positioning as a hedge against the impact of long-term rates on stocks in a world he believes will be characterized by persistent 3% inflation.
“I have been surprised how low US long-term rates have remained in light of structural changes that are likely to lead to higher levels of long-term inflation,” Ackman wrote on Twitter. He cited factors such as de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers as potential drivers of this inflation.
Ackman also pointed to the overbought nature of long-term Treasurys and the increasing supply of these securities due to the U.S.’s $32 trillion debt and large deficits. “When you couple new issuance with QT, it is hard to imagine how the market absorbs such a large increase in supply without materially higher rates,” he added. Remarkably, the 30 year yield climbed to 4.28% yesterday.
However, not everyone agrees with Ackman’s perspective. Ram Ahluwalia, CEO of Lumida Wealth, suggested that Ackman’s views might already be priced into the market. “When someone has an idea, especially a hedge fund manager, it’s good mental habit to assume the idea is Consensus,” Ahluwalia wrote on Twitter. He even suggested taking the opposite view, advocating for buying 10-year bonds in the 4.1 to 4.25% range and mortgage bonds at 6.5 to 7%.
Meanwhile, Lisa Abramowicz, a Bloomberg analyst, noted that the U.S. Treasury selloff has been driven by long-dated notes, not those most sensitive to Fed policy. “This suggests two things: traders expect inflation to stay higher for longer and they question whether the Fed is truly going to raise rates high enough to achieve 2% inflation,” she said.
Implications For Bitcoin And The Crypto Market?
Since the opinions are divergent and, moreover, Bitcoin and bond yields are linked in several ways, there are several potential scenarios.
Scenario 1: Yields Rise Significantly
If Bill Ackman’s prediction comes true and the yield on 30-year Treasury bills rises significantly to around 5.5%, this could have several implications for Bitcoin.
Increased Risk Appetite: Higher bond yields could indicate a greater risk appetite among investors. If investors are willing to accept higher risk for higher returns, they might also be more inclined to invest in Bitcoin, which is often seen as a riskier asset. This could potentially drive up the price of Bitcoin.
Inflation Hedge: If the rise in bond yields is driven by increased inflation expectations, Bitcoin could attract more investment as a potential store of value. Bitcoin, often referred to as ‘digital gold’, has been seen by some investors as a hedge against inflation. If inflation continues to rise and erodes the value of fiat currencies, more investors might turn to Bitcoin, pushing its price higher. However, that’s a narrative that still needs to be proven over time.
Furthermore, it’s important to note that if yields rise too quickly or too high, it could lead to a sell-off in risk assets, including Bitcoin, as investors move to safer assets. This could potentially put downward pressure on Bitcoin’s price.
Scenario 2: Yields Remain Stable Or Fall
If, contrary to Ackman’s prediction, yields remain stable or fall, this could also impact Bitcoin.
Risk Aversion: Lower yields could suggest that investors are moving towards safer assets, which could negatively impact Bitcoin prices. If investors are less willing to take on risk, they might move away from Bitcoin towards safer assets like bonds.
Liquidity Conditions: Bond yields can reflect liquidity conditions in the market. If yields fall, it could suggest that liquidity is high. In such a scenario, there could be more capital available for investment in assets like Bitcoin, potentially supporting its price.
Scenario 3: Market Uncertainty Increases
If market uncertainty increases, for example due to concerns about U.S. fiscal policy or rapid repricing in the bond market, Bitcoin could potentially serve as a hedge.
Hedge Against Uncertainty: In times of market uncertainty, like in the banking crisis in March, some investors might turn to Bitcoin as a potential hedge. If Bitcoin’s perceived status as a ‘digital gold’ or safe haven asset strengthens, this could potentially attract more investment and drive up its price.
However, it’s important to note that Bitcoin’s reaction to market uncertainty can be unpredictable and can depend on a variety of factors, including investor sentiment and broader market conditions.
In conclusion, the potential impact of bond yield movements on Bitcoin’s price is complex and can depend on a variety of factors. Investors should remain vigilant and consider a range of potential scenarios.
Otherwise, Bitcoin and crypto intrinsic factors like the approval of a Bitcoin spot ETF, a Ether futures ETF or any actions by the US Department of Justice (DOJ) against Binance, among others, have the potential to cause an increased volatility.
Featured image from CNBC, chart from TradingView.com
In response to a request for comment, AT&T Inc did not provide an immediate response to debunk the hanging fears from investors and users.
AT&T Inc (NYSE: T), one of the world’s largest telecommunications companies has witnessed a significant drop in its stock value, reaching its lowest point in three decades. Shares of the company reportedly tumbled by nearly 7% on Monday, as news of its involvement in the distribution of toxic lead cables spread like wildfire.
A recent report published by The Wall Street Journal on July 9 has brought to light a disturbing revelation involving major telecommunications giants AT&T and Verizon Communications Inc (NYSE: VZ). The report names these corporations, among others, as having abandoned an enormous network of underground wires containing hazardous lead.
Implications for AT&T Stock
AT&T now faces the challenge of restoring investor confidence amidst the ongoing toxic lead cable scandal. The stock has lost a quarter of its value this year, plummeting more than 12% since the Wall Street Journal report. The stock touched a low of $13.68 on Monday, the lowest since March 1993.
AT&T’s forward Price-to-Earnings (P/E) ratio of 5.95, as reported by Eikon data, stands below the industry median of 8.78. This suggests that AT&T’s stock is trading at a lower valuation than its peers in the industry.
Notably, Verizon has also experienced a decline in its stock price, falling 5.5% to $32.14, reaching a nearly 13-year low. Since The Wall Street Journal report, Verizon’s stock has lost over 10% of its value.
Citi analysts, led by Michael Rollins highlighted in a recent investor note that AT&T’s potential significant exposure to toxic lead cables poses unquantifiable financial risks for the company, creating a long-term overhang on its stock. With its extensive network reaching about 40% of US homes, the financial implications related to environmental cleanup, remediation efforts, and legal liabilities are causes for concern.
In response to a request for comment, AT&T Inc did not provide an immediate response to debunk the hanging fears from investors and users. However, US Telecom, a lobby group representing AT&T, Verizon, and other telecoms firms, issued a statement shedding light on the considerations involved in the decision to remove or leave buried cables.
The group emphasized that there is currently no evidence indicating that “legacy lead-sheathed telecom cables” are the leading cause of lead exposure or public health issues.
Analysts Downgrade AT&T Ratings
Analyst Michael Rollins from Citigroup has downgraded his rating on the company’s stock and significantly reduced the price target. Rollins downgraded the stock from “buy” to “neutral” and slashed the price target from $22 to $16. Similarly, JPMorgan Chase & Co (NYSE: JPM) analysts, led by Philip Cusick, have joined the list of analysts downgrading their rating on AT&T Inc’s stock. The analysts lowered their rating from “overweight” to “neutral” in response to the series of concerns.
The downgraded rating by JPMorgan further underscores the growing apprehension among analysts regarding AT&T’s financial outlook and potential challenges the company may face in its core business areas.
On the other hand, Morningstar analyst Michael Hodel has commented that while the situation warrants attention, he does not expect the telecom industry to bear substantial legal liability.
Hodel’s statement reflects the belief that the potential legal consequences and financial liabilities associated with the toxic lead cables may not have a significant impact on the overall telecom industry. However, constant monitoring and assessment of the situation will be required to properly grasp the scope of any legal or financial consequences.
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.