Market Snapshot January 9, 2018


Good Tuesday PM.


It is U G L Y today (both the weather and in the bond market). The 10-year U.S. Treasury blew through its support at 2.50% and is halfway up the ladder to the next stop at 2.60%. Mortgage bonds are not putting up any fight. They are down 26bps, through one level of support and are quickly approaching the next. So when there is a selloff as we have seen over the past two weeks, there is typically a rebound of at least 50%. I say typically, as I do remember a time not too long ago (Nov 8th 2016), when bond yields kept rising until we it 2.62%… we hit that rate again in early 2017 and it currently sits at our double top. Pretty significant line in the sand and may not hold a third time. Several predictions out calling for the 10-yr to hit 2.70, but I am not in that corner. I am hopeful we will see some buyers step in soon, there was just a lot of unfriendly news today.  I say unfriendly but it is really more about high the school economics of supply and demand. Some items creating more supply are:


  • A surprise cut in purchases of long-dated Japanese government bonds by the Bank of Japan.
  • A glut of looming bond supply from the U.S., the U.K., Japan and Germany.
  • Lower unemployment across Europe.
  • Fed now entering its next leg of limiting bond purchases (they are buying less Treasury and Mortgage bonds).


And since last Friday, I have been thinking about the weak jobs report… (yes, I am that much fun.. ) and am now curious if the reason for what we see as a weak report may just be reflective of the number of workers available to hire. I am doing a little more research on this but that could be the inflation tipping point… and it would lag but will show up in wages. The Feb 2nd report should tell a bit more.


Interesting stats… The single-family rental market has grown by 5 million from 2006 to 2017 – wiping out 270,000 potential home sales annually. An analysis by Zillow considered the impact on the nationwide home inventory and calculated that booming rental market meant a 5% decline in for-sale inventory each year. The figures reveal that 120,000 of the total lost sales would have been the starter homes desperately sought by first time buyers. In the past 5 years, almost 40% of the single-family homes bought and converted to rentals have been starter homes. A major reason for the rental surge was the financial crisis as borrowers who lost their homes were forced into rentals. The share of single-family homes that were rented out jumped from 13% in 2007 to 19.2% in 2016. There’s still strong demand for single-family homes to rent with 45% of renters wanting one but only 28% finding an available home.

Make today great!