What the Yield Curve can tell:
Yield curve can tell the trend. So, you can judge if the rate is going to go up or down in future or not. In 2007 an inverted yield curve was telling us that in future the rates will go down. At that time who ever selected a variable rate mortgage got the maximum benefit of rate trending lower.
What Yield Curve Can’t tell:
It cannot predict the yield. If you look at the curve then you shall see that in 2007 the yield expectation after five years did not come close to the real yield in 2012. So, in this random example the trend outlook was somewhat close but the yield was way off.
What we can guess now:
The days of inverted curve are over. The future looks better than it is now – from the perspectives of yield and inflation. The ups and downs in the curve are likely indicators of yet unstable market.
What we should do:
This is a bigger guess work than the last one. Well, if the above guess is correct (if and only if) then it is likely that in future the rates will be higher than what it is today.
When the rate expectation in future is higher and uncertain then you know what to do.
As you can see from this chart – House prices went up, rates went down, salary and arrears stayed flat. Once the rates start to go up – there will be some load balancing. You can not be sure which factor will give in first – but we shall see.