Magazine article American Banker

Some Experts Think Short Rates Will Top Long Ones in 1st Half

Magazine article American Banker

Some Experts Think Short Rates Will Top Long Ones in 1st Half

Article excerpt

Some analysts and economists are beginning to predict an inversion of the yield curve in the first half of 1995. They are still in the minority, but most others agree that the curve will certainly flatten if not invert.

Reshaping the Yield Curve Some analysts are predicting an inverted yield curve sometime this year.

         Short-term rates
What     would become higher
         than long-term rates.
         Because the Fed
Why      Keeps pushing short
         rates up to curb infla-
         tion.
         Adjustable-rate loans
         would fall out of favor,
Impact   shifting the market
         advantage back to
         mortgage bankers.

An inverted curve means simply that short-term rates will be higher than long-term rates. And this has substantial implications for the mortgage business.

"An inversion would be bad for portolio lenders," said David Lereah, chief economist for the Mortgage Bankers Association. "Mortgage banks would have an edge with their fixed-rate loans."

Mr. Lereah added, though, that he does not expect an inverted yield curve. "You'll get it only if the Fed keeps on pushing short-term rates up," he said.

Merrill Lynch & Co. is among the believers in the yield-curve inversion. In its Mortgage Choice, a monthly publication of the mortgage-backed securities research department, it says: "The only question is whether the inversion takes place in a higher, stable, or lower long-rate scenario."

As a result, it is expecting originations of adjustable-rate mortgages to drop significantly. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.