01/16/24 09:20 AM EST

Yield Curve Flipping Positive

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

We have covered the steepening yield curve for some time, as the 2s vs. 30s flip positive for the first time since July 2022. The 2s vs. 10s are about to follow, only inverted 20 basis points this morning.

A steepening curve has direct consequences for those considering refinancing their mortgages. When the long end of the curve — the longer-term interest rates — rises, it consequently pushes up mortgage rates, which are typically aligned with benchmarks like the 30-year Treasury yield. This uptick diminishes the appeal of refinancing, as homeowners face higher potential rates than before, reducing the attractiveness of renegotiating their mortgage terms. This note from Harley Bassman regarding MBS investing, and what a steepening curve means for this asset class, is worth reading.

Conversely, this steepening yield curve presents a silver lining for investors seeking to finance or leverage positions. The growing gap between short-term borrowing costs and long-term investment returns creates fertile ground for leveraging strategies. Investors are afforded the opportunity to borrow at relatively lower short-term rates while potentially earning more from long-term investments, thus amplifying their investment power.

Learn more about the Market Situation Report written by Tier 1 Alpha.