Weekly overview: Oil prices hit 3-year high; US 2-year Treasury yields highest since September 2008; Subprime is making a comeback

Oil prices closed at $67.39 on Friday, gaining 8.6% during the week and hitting a 3-year high. Like we covered here, the impact of oil prices is being felt with oil dependent companies like airlines already seeing margins squeezed.

Meanwhile, US 2-year Treasury bonds hit a high of 2.373%, the highest since September 9, 2008 (if the date sounds familiar it was just 5 days before Lehman Brothers entered Chapter 11 administration).

Markets are betting on more Federal Reserve hikes following the release of minutes from the Federal Open Market Committee’s March meeting which showed optimism about the economy. Good employment numbers and strong first quarter earnings further have further contributed to the view that rates are headed upwards quickly.

Subprime is back (well kind of) in the US. Carrington Mortgage Services, a mid-sized lender that originates and securitizes mortgages with “less than perfect” credit ratings, along with other major players in the US – Angel Oak Mortgages and Caliber Home loans have all seen soaring demand for their products targeted at people with credit scores who would have been classed as “subprime” before the 2008 crisis.

Home sales in the US generally see a boom in Spring (starting April) and sales appear to have got to a good start this year. There are also some reports of a boom in property prices (and demand) in parts of Europe such as Dublin.

Additionally, the Bank of England has reported a significant slowdown in mortgage demand in the first quarter of 2018 in the UK. The mortgage outstanding hit a high in February (we covered this here) but the statistics are suggesting a significant slowdown in growth rates in mortgage demand in the UK. Banks need to find customers to lend and suddenly there are a lot more products on sale with falling interest rates for people with smaller deposits (of 5% to 15%). All this feels a bit like 2008 then? Or perhaps this time it is different.

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