Market Snapshot October 10, 2017

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Good Tuesday A.M.,

 

Just to clarify… yesterday wasn’t a day off, just that the bond market was closed and not much to share. Bonds are clawing their way back up from the shellacking last Friday. Overall, last week cost mortgage bonds about 56bps. The good news is there is support here and we could see about a 50% re-tracement this week. We are not going to get there all in one day or week, but I am still optimistic over the midterm for rates. The 10-yr is at 2.33% and mortgage bonds are +12bps (at our 100 day moving average, which is a significant technical indicator…) bonds are also showing they are oversold, so unless we get some strong economic data (not much data on the horizon until Thursday) we have room to improve. The playground brawl between President Trump and Senator Corker over the weekend has markets curious if the Tax Reform Bill is still viable. That uncertainty (along with North Korea, and a host of other reasons) is keeping bonds relevant despite stocks continuing to make new highs.

 

Two notes…

• The spread between the German 10-yr bund, which typically moves in sync (+180bos or so) with our 10-yr Treasury, has widened to 190bps. I suspect this spread will shrink back toward 180bps with the US 10-yr yield improving to close the gap.

• The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second. No, these are not the sins of the past coming back to haunt over Halloween, but instead a rational financial decision.

 

Make today great!