Chart of the Year

The Fed’s recent cuts have impacted the mortgage market. The average rate on a 30-year fixed-rate mortgage in the U.S. is 3.73%. Mortgage rates are already 1% below where they were one year ago, and I think it is very likely that interest rates will stay low. That’s good for the economy and the housing sector.

This is really the culmination of a dramatic yield curve story that played out all year. Let’s take a look at one of my top candidates for Chart of the Year.

The chart above shows the yield on the three-month Treasury (in red) along with the 30-year Treasury (in blue). You can see how both were trending downward during the first half of this year. However, starting in the summer, the gap between the two narrowed dramatically. By August, the ten-year yield briefly dipped below the three-month yield. That was the dreaded inverted yield curve that made headlines for about 36 hours.

It was almost like a cry for help from the bond market. The Federal Reserve heard the pleas and moved to act. The Fed slashed rates three times in three months.

At the time, a lot of folks on Wall Street, especially the bears, thought this was the beginning of a rate-cutting cycle. The Fed said that their moves were merely mid-cycle adjustments. The Fed held firm and it appears that Jerome Powell and his friends on the FOMC have prevailed again the bond market.

What makes me say that? Notice how the 10-year yield (the blue line) has started to stabilize in recent weeks. The yield is actually above the lows from a three months ago. This probably hints at a re-accelerating economy. Also, inflation continues to remain low.

Posted by on December 17th, 2019 at 2:30 pm


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