Mortgage News and Notes

Explaining the Inverted Yield Curve: Side benefit - lower mortgage rates

August 22nd, 2019 11:29 AM by Steven Hofberg

Some of you have been asking “what is an ‘inverted yield curve’ and how does it affect me personally?” The news cycle has been filled with commentary about it lately. Economists generally agree that an inverted yield curve can signal a coming recession, but not always. All recessions have been preceded by an inverted yield curve, but not all inverted yield curves have led to recessions.

 

A yield curve shows the relationship bonds with different terms have regarding their yield. Ordinarily, you want a higher rate of return for buying a bond (or a CD) with a longer term. Two benchmark bonds are the US 2-year bond and the US 10-year bond. The 10-year bond will almost always offer a higher rate of return than the 2-year bond, due to the increased interest rate risk over a much longer period. However, last week the yield on the 10-year bond fell below that of the 2-year bond. Needless to say, people became concerned.

 

This is the “safe haven” reaction to uncertain times. Staying with economics, many analysts are looking at continuing trade wars and the looming mess of a Brexit (among other global tensions) for creating worry in the investment community and board rooms of major corporations. Consequently, there is a move from stocks to bonds, which drives down interest rates. 

 

The silver lining: mortgage rates tend to track the 10-year bond pretty closely. Right now, those rates are really good. If you have been considering buying a home or refinancing, it’s time to take advantage of this market.

 

Steven H Hofberg, Operations Manager

Posted by Steven Hofberg on August 22nd, 2019 11:29 AM

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