'Inversion' in Bond Rates Hits Stocks: The yield on the 10-year Treasury note drops to a level at or below those of shorter-term securities, in what may foreshadow an economic slump.

I don't pretend to understand this tea-leaf reading, but it sounds ominous. Check out what one analyst said about the effect on the housing market. On the other hand, Alan Greenspan says this is not a problem at all. So go figure.

Normally, longer-term bonds pay more than shorter-term issues to compensate investors for the risk of tying up their money for an extended period. When long- and short-term interest rates converge, it often is a sign that bond investors believe the economy will slow ? so they're locking in long-term yields in anticipation that rates overall soon will level off or even head lower...The 10-year T-note yield, a benchmark for mortgages and other long-term rates, ended at 4.34% on Tuesday, down from 4.37% on Friday and the lowest since Sept. 30. By comparison, the Treasury sold new six-month bills at an annualized yield of 4.35% on Tuesday. And the two-year T-note ended at 4.34%, down from 4.36% on Friday...The last time rates inverted was in the second half of 2000. By spring of 2001, the U.S. economy was in recession...AIG SunAmerica's Cheah said he was more pessimistic about the economy because he worried about the effects of a rate inversion on the housing market. Banks, he said, may no longer find it profitable enough to make long-term loans such as conventional mortgages. "I'm betting that ? many banks will stop lending to the housing market," triggering broader economic weakness, he said.