Money and Investing Thoughts

Mark Hulbert has commentary on Market Watch.com concerning the steepening yield curve. To summarize his comments:

• A steepening yield curve historically reduces the probability of recession.
• The bond timing newsletters he tracks are not making a big deal of the change in the curve.

Overall, the impression is the change in the yield curve really hasn’t affected the pundit’s thinking.

Jeff at a Dash of Insight has a post concerning fears of the CNBC types, without seeing the big picture.

My thoughts:

The recent credit/mortgage scare will scare the majority of new mortgages to 30 year fixed for the main reason people have gotten 30 year fixed mortgages in the past: no surprises. If shorter term rates end up well below longer term rates, adjustable rate mortgages will have a significant advantage, however only the very sophisticated or more aggressive will be interested in the savings vs. future possible rate/payment increases.

If adjustable rate mortgages are sold/written without overly aggressive “teaser” rates as the start they can be less costly even with resets in a normal yield curve environment. Remember adjustables can be reset to lower rates also.

I think a higher demand for 30 year fixed mortgages could actually push up rates at the long end of the curve. And if the Fed cuts at the short end a few more times we could see a significantly higher spread between short and long rates.