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S&P “Downgrade” – Good for Rates?; Inflation!

S&P’s downgrade of U.S. Debt did not push rates upward as feared (normally, when bonds are deemed “more risky”, the corresponding interest rates must increase).

Rates went down and did not go up for two major reasons: (1) S&P’s downgrade was just one more indicator of major economic weakness throughout the world, and it helped scare investors away from stocks and into bonds (ironically); and (2) The U.S. Economy is too big and there is too little competition elsewhere to attract bond-investment-money. Hence, investors have nowhere else to park their bond-investment-dollars whether there is a “downgrade” or not.

If there was a huge economy elsewhere, capable of absorbing massive influxes of investor dollars, then the U.S. would be in trouble. But, right now there isn’t, and we can weather slight downgrades without a hitch.

Our concern right now??? Inflation. As always. The Fed committed to low rates for 2 more years, and we think inflation is inevitable. As always, we say “buy now” and “lock now”.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167