Conversion of the interest rate curves deepening. Does this mean a recession is ahead?
Yes, investors are diving into the 10-year bond in droves! Thus, driving the field sharply lower. It is not necessary a harbinger of recession … but it needs watching!
The last time this happened was August 2007. In Germany now people are so eager for safety that they will accept TO PAY to leave their money in the bank as banks PAY -0.7%! That means you put in $100,000 and it costs you $700 to be there! Never mind earning interest.
Major Point: Trouble ahead? Yes. We will likely muddle through but once again: cash is not trash.The older you are, the closer you should be to your favourite commodity: Cash!
Immediate impact on mortgages. The long-term rates (Canada’s 5-year term rate, US 30-year rate) are tied to the long-term bond rates. With them crashing, long term mortgages will follow.
US: The 30-year mortgage is down to 3.9%. At the end of June there will be 2 million US households able to refinance their rates … they will and will have more cash to spend.
CANADA: The 5-year rate is down to as low as 2.7 % (if you did not just have your TV repossessed!). This makes it easier on households, but the stress test still places the new borrower at 5.4% to qualify. NUTS! Again: WE SHOULD ACTIVELY PURSUE AND SUE, CREDIT CARD COMPANIES AND STORES THAT CHARGE 20% – 27%. IT IS USURY!