Wednesday, February 27, 2008


We've had a number of recent interest rate cuts. Therefore, mortgage interest rates should be declining. Right?


This is a problem in stagflation conditions. Because inflation is a concern, bond traders are selling longer term bonds because of future higher interest rates that will be needed to stop inflation. This means that the 10 year bond, which is a key benchmark for mortgage rates, has a higher interest rate than before the cuts!

It's going to take some good inflation news before interest rates begin to cool. And I just don't see that happening in the near term.

No comments: