Katrina slamming the Gulf Coast has resulted in a temporary fall in mortgage rates. Why? Stocks and bonds compete for the same investment dollars. The destruction is going to drive energy prices higher, potentially slowing down growth – which means stocks are not as desireable as bonds. Investors shift to bonds – increasing the demand and increasing it’s price. This increase in bond prices means the interest on bonds falls. This is the logic and it’s holding.
Word of caution though is that long term, high energy prices means a spike in inflation which is the death knell for bonds. So, this is just a temporary fall for mortgage rates.
Katrina Drives Energy Prices to New HighsTuesday August 30, 5:36 pm ET By Brad Foss, AP Business Writer Energy Prices Surge to New Highs in Wake of Gulf Coast Refinery, Pipeline Snags
The potential damage to oil platforms, refineries and pipelines that remain closed along the Gulf Coast drove energy prices to new highs Tuesday, with crude futures briefly topping $70 a barrel and wholesale gasoline costs surging to levels that could lead to $3 a gallon at the pump in some markets.
Companies scrambled planes and helicopters to get an aerial view of their assets and they began escorting some previously evacuated workers back to offshore facilities to conduct detailed inspections of rigs and underwater pipes. Some producers found that a rig or platform had disappeared, drifted or listed, while others reported that damage appeared minimal.
Onshore, flooding from Hurricane Katrina is likely to have caused enough damage to some refineries that it could take weeks, and possibly a month or more, before operations return to normal, analysts said.
Read full story at: http://biz.yahoo.com/ap/050830/oil_prices.html?.v=17