Welcome to Thoughts on the Market.

I'm Andrew Sheets, Chief Cross Asset Strategy for Morgan Stanley.

Along with my colleagues bringing a variety of perspectives,

I'll be talking about trends across the global investment landscape and how we put those ideas together.

It's Friday, December 18th at 2 p.m. in London.

If you own a home or rent a home, you might have given some thought to rental yield, a term for how much the place rents for relative to its current price.

You can think of it a little like a bond. A property's price is like a bond's price, the annual rent is like a bond's coupon, and the relationship

between them is like a bond's yield.

And just like a bond, shifts in that yield can cause swings in price, swings that might be larger

than one would initially assume.

Consider a situation where a real estate agent says they think the rental yield in an area

is about 2%. But the next day they call up and say they were off by just a little.

Instead of 2%, it should be 3. That 1% difference in the

yield of a property might sound pretty small, but the price impact can be very, very large.

Keep the rent fixed, but raise the required rental yield from 2 to 3 percent, and a property is worth 33 percent less.

The high sensitivity is due to a mathematical quirk. As yields or interest rates get lower, bond prices, or home prices get more sensitive to changes in them.

As bond yields have fallen, mortgage rates have fallen.

As mortgage rates have fallen, home prices have risen relative to what a property would rent for, pushing

rental yields down. And as rental yields have fallen, home prices, along with

bond prices, have become more sensitive to changes in them. In bond markets,

how much the price of something changes relative to a change in its

interest rate is called the duration. As yields have fallen, the duration of a lot of assets has gone up. They're getting more

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