Bonds spike on signs of economic weakness

AP via CNN ^ | 1/02/08 | Staff

[Kid Shelleen]

Treasury prices started the year with a vigorous rally Wednesday after jolting news that the nation's manufacturing activity shrank in December. The benchmark 10-year yield fell back below 4 percent.

Signs of economic fragility often trigger demand for Treasurys, which carry a government guarantee and little risk. These concerns were intensified by an historic rise in crude futures about $100 a barrel and a downbeat assessment of the economy in the latest Federal Open Market Committee meeting minutes.

[Kid Shelleen]

But mortgage rates have not fallen commensurately with the fed and market moves(I think); If true does this mean feds will have to lower again?

[Always Right]

Based on recent economic news, the fed will cut unless there is a significant spike in inflation.

[bshomoic]

And the dollar will continue to erode... just got back from a trip to Europe. $10 for coffee and a roll gets old pretty quickly.

[ex-snook]

Cutting interest rates is a non-solution if high interest rates did not cause the problem. Inflation will only make problems worse and make is harder to pay off mortgages.

[AmericaUnited]

Inflation will only make problems worse and make is harder to pay off mortgages

Deflation makes paying off debt harder. You owe $100,000 on your mortgage. If inflation provides you with more dollars, it is easier, since the amount you owe stays fixed.

[ex-snook]

"If inflation provides you with more dollars, it is easier,"

True but that's the big 'if'. That appears less likely to happen as jobs are outsourced, so there is less money to pay the mortgage as the cost of everything else rises.

[Moonman62]

Cutting interest rates is a non-solution if high interest rates did not cause the problem.

Why people fail to hold the Federal Reserve accountable I'll never know.

Inflation will only make problems worse and make is harder to pay off mortgages.

You may want to rethink that statement.

[Moonman62]

But mortgage rates have not fallen commensurately with the fed and market moves(I think);

They've fallen some, but a risk premium is preventing them from falling as much as they should. That's the effect of the credit crunch.

If true does this mean feds will have to lower again?

The Fed should have lowered sharply a long time ago.

[dakine]

“If inflation provides you with more dollars, it is easier, since the amount you owe stays fixed.”

If, big if, you get WAGE inflation....

[jiggyboy]

But mortgage rates have not fallen commensurately with the fed and market moves(I think); If true does this mean feds will have to lower again?

Many mortgage rates are based on the 10-year rate which as the article notes have fallen below 4% again. This really has been within a couple of tenths of a percent of historic, I mean thirty years, lows, and has been for some time now.

The Fed can cut rates if they want but easy money ain't the solution this time. It was the cause! Everybody who qualifies for a home loan either got it or has already been blown out of it.