From Mike Smith
Scope Aircraft Finance
In the last couple of weeks, the phrase everyone has been focused on is “inverted yield curve”. Put simply, an inverted yield curve just means that short term Treasury Bonds have a higher rate than longer term Bonds. Why is that of note? Many folks say that an inverted yield curve is an early indicator of an oncoming recession. On March 24, James Mackintosh wrote a piece for The Wall Street Journal, where he did an excellent job describing what an inversion really means:
“It means investors think that the Federal Reserve is going to cut rates, so the current short-dated yield isn’t going to be sustained over the full 10 years. Since the 10-year discounts the average short rate over the period that should mean the 10-year falls.
That isn’t quite the same thing as predicting recession, since the Fed can cut rates without recession. Indeed, the two times that yield curves inverted on most measures without recession were in 1998 and 1965-66, both times when the Fed slashed rates and the economy continued to grow.”
Additionally, in the March Fed meeting, the Fed minutes showed that they now forecast zero rate hikes in 2019. If Mr. Mackintosh’s interpretation is correct…we may actually see a rate CUT this year. (Note: these are forecasts, time will tell what happens!)
So what does that mean for aircraft finance? In our loan programs, we’ve seen a similar shift occur in our rates. As an example, on April 3, 2017, the 2 year fixed rate we offered customers was 0.63% lower than the 5 year fixed rate we offered. As of April 2, 2019, the 2 year rate was the EXACT SAME as the 5 year rate.
This flattening was partially due to a recent drop in the 5 year rate. Put simply, even without Fed action, the market volatility has resulted in slightly lower 5 year rates for customers than we had earlier this year, and last year. While rates are off their historic lows, they remain lower than historical averages.
Bottom line: It’s still a great time for your customer to finance an aircraft purchase, and we’re ready to help them find the best option for their needs.
Mike Smith may be contacted directly at 800-357-5773.