Why Are Loan Rates Falling?

On today’s show we are talking about why we are seeing long term interest rates falling, even though short term rates have held steady since mid summer.

We can see clearly what has happened in the market. Long term rates went up from June to October, peaking at nearly 5% for the 10 year treasury. The rates have dropped by nearly a full percentage point since the end of October. The yield curve had nearly flattened after being inverted for much of the past 18 months. Now the yield curve is deeply inverted again.

As of publication of today’s episode the yield for the 10 year was 4.12%

The rates for permanent financing are indexed to the 10 year treasury in the US, and the commercial bond rate in Canada. Canadian CMB bond rates are even lower at 3.66% for the 5 year and 3.72% for the 10 year.

It’s tempting to simply rejoice at the lower borrowing costs and ride off into the sunset with new commercial loans at respectable rates. But life’s not that simple. The real question is why are rates falling so rapidly after rising sharply in the weeks leading up to the middle of October?

What is the market telling us?

What is the bond market telling us about the economy?

What is the bond market telling us about inflation?

What is the bond market telling us about the future trajectory of interest rates?

What is the bond market telling us about the future price of the medium term treasuries, and is there anything we can learn from that?

----------

Host: Victor Menasce

email: [email protected]