THE BASIS POINT

Reminder: Rates Can Rise In Sluggish Economy

 

Yes, an expanding economy often pushes rates higher, but often rates move based on supply and demand. Just like how the lack of demand for a purple Ford Pinto forces the price lower, if the demand for US securities drops, that may push prices down, and thus rates higher. The story may be coming to a theater near you this summer as banks trim Treasury usage.

Meanwhile: World economies are struggling, debt in the US is mounting, mortgage bankers are grappling with disclosure, buyback, and volume issues, banks are holding huge amounts of cash reserves in case the “worst case scenario” hits, and taxpayers still face risk from Fannie and Freddie.

 

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