Record Low Yields

8.3.16 | Record Low Yields – Rusty Tweed team

 The just completed month of July 2016 had the lowest closing yield on the 10-year Treasury note (1.36%) and the 30-year Treasury bond (2.10%) in history, both occurring on Friday 7/08/16 (source: Treasury Department).

Global government bond yields have declined steeply since the U.K.’s vote in late June to leave the European Union.

Bond expert Jim Vogel of FTN Financial says that yields could fall even further to 1.25%.

30-Year U.S. Treasury Bonds Selling at Record Highs

Despite being at their lowest yield ever, in mid July, the U.S. sold $12 billion of 30-year Treasury bonds. Foreign investors bought bonds at a record high rate. Amid a significant number of negative yielding government bonds in Europe and Japan, global investors are seeking refuge in U.S. government bonds.

Yields in the developed world have hit record lows following the UK’s Brexit vote to exit the European Union in late June. The U.S. 30 year bond offers the highest yield in the U.S. Treasury market, and significantly more attractive yields compared with overseas equivalents. The U.S. government benefits as it borrows cheaply to finance the budget deficit.

The 30-year Treasury Bonds were sold at a yield of 2.172%. January 2015 saw a previous low of 2.43%.

Jon Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, New Jersey, said, investors are willing to accept low yields because there is a lot of uncertainty. He added, the U.S. Treasury Bond market is “still the No. 1 place to be if you want safety and positive income”.

Worldwide Bonds Following Brexit

According to Bank of America Merrill Lynch, there is now $13 trillion of global negative-yielding debt. Before the Brexit vote, this figure was $11 trillion. In mid-2014, almost no government bonds had a negative yield.

In July, Germany sold 10-year bonds at a yield of -0.05%. If their price increases in secondary markets, investors can still make a profit on these bonds; however, given the zero coupon, they won’t receive any annual interest payment.

Other countries with negative yielding bonds include Switzerland and Japan.

 References:

http://www.wsj.com/articles/government-bonds-in-u-s-europe-strengthen-1468420046

http://www.wsj.com/articles/government-bond-yields-in-u-s-europe-hit-historic-lows-1467731411

http://money.cnn.com/2016/07/05/investing/us-10-year-bond-yield-record-low/

http://money.cnn.com/2016/06/28/investing/treasury-bonds-brexit-flight-to-quality/?iid=EL

Sources:

Treasury Department

China Tops List of Foreign Buyers of U.S. Real Estate

7.8.2016 | China Tops Foreign Buyers of Real Estate – Rusty Tweed team

The Overview

The National Association of Realtors (NAR) released a report on Wednesday that detailed foreign purchases of U.S. real estate from April 2015 – March 2016, providing a useful comparative overview of the year. In total, foreign buyers purchased $102.6 billion of residential property, which marks a decrease from $103.9 billion in the previous 12-month period; despite a 3 percent increase in the total number of properties purchased overall.

Purchases by non-resident foreigners decreased to 41 percent of residential units whereas purchases by resident foreigners increased to 59 percent. In previous years, purchases by resident and non-residents have been more evenly split. This is likely a result of the dollar strengthening against many foreign currencies and a corresponding slowing of economic growth in numerous countries, including China and Latin America.

China Tops List of Foreign Buyers of U.S. Real Estate

For the fourth year in a row, China tops list of foreign buyers of U.S. real estate. The survey reveals that Chinese purchases were over triple that of the second nation on the list, Canada. Across the year, Chinese buyers acquired 29,195 properties totaling $27.3 billion. The median Chinese spend on a property was $542,084, over double the median U.S. home-price of $223,058. This suggests that these buyers are part of the growing Chinese elite.

India ranked third on the list at $6.1 billion of purchases. Mexico came fourth at $4.8 billion, and the United Kingdom is currently in fifth place with $5.5 billion. However, Lawrence Yun, NAR’s chief economist, warned that British purchases may fall following its vote to leave the European Union, which has seen sterling drop to its lowest levels in 30 years.

Geographic Spread

Five states account for 51 percent of total residential property purchases in the U.S. Asian buyers are favoring property in New York and California; whereas Florida and Arizona are the prime locations for Canadians, Europeans and Latin Americans.

Americans Seeking Property Abroad

U.S. domestic citizens were also looking to purchase property abroad, with Mexico, Costa Rica, the Philippines, Colombia, and Canada generating the highest levels of interest from survey respondents. Seventy-nine percent of recent clients looking to make an international purchase were seeking a vacation home and/or rental property.

First reported in Market Watch