The Flattening Of The YieldCurve

McLEAN, Va. - (11/18/05) -- The yield curve continued to flattenout this week, with short-term mortgage rates moving ever closer tolong-term rates, according to Freddie Mac. The average for thebenchmark 30-year, fixed-rate mortgage rose to 6.37%, it's highestin two years, from 6.36% last week; while the average for the15-year, fixed-rate loan increased to 5.90%, from 5.89%. ARM ratesalso continued to climb to two-year highs, with the average for theone-year ARM hitting 5.20%, from 5.12% last week; and the averagefor the five-year ARM moving to 5.86%, from 5.81%. The compressionof rates--the so-called flattening of the yield curve--comes as theFederal Reserve continues to push short-term rates higher."Recently released inflation indicators - the Consumer Price Indexand Producer Price Index -- brought down long term bond yields,flattening out the yield curve," said Frank Nothaft, chiefeconomist for Freddie Mac. "Consequently, the difference betweenthe 30-year fixed-rate mortgage and the one-year ARM rate is thenarrowest it has been since November of 2001. This will make theone-year ARM product much less attractive to borrowers."