A happy Friday the 13th to you.
It’s a bit quiet out there today. Stocks improving a bit as earning seasons begin. Bonds improving a bit on weaker data. Imports/exports as well as Michigan sentiment missed expectations. The Dow up 89, bonds are at 2.84% on the 10-yr and +8bps on mortgage bonds. Both stocks and bonds are well within the recent range. As for bonds, the same story is without some expectation that rates will improve, it is more prudent to lock and float down if there is improvement. Next week is a bit busier with the Trump-Putin meeting, Retail sales data, Cap U data, Fed Chair Powell’s statement, etc.. Until then…
Have a fantastic weekend and first make today great!
Good Thursday A.M.,
Getting a late start this a.m. so am including an edited version of Dan Rawitch’s column as it is on point. CPI at the core level came in as expected at .2%, while weekly jobless claims beat expectations. The bond market is doing ok and the stock market is up 190 points, after a huge slide yesterday. We are again testing 2.85% on the 10-yr and mortgage bonds are flat on the day. There is still much concern over the escalating trade war. In most instances this level of concern would benefit bonds. However, many traders have not experienced a real trade war in their lifetimes and most are unsure how to play this. For my two cents, although these tariffs will be inflationary, they will at the same time cause a tremendous drag on GDP and in the end, rates should fall. The real risk here, could be stag-flation, but this is not likely. The key here is that there is no evidence to expect rates are going to improve and without that, the third base coach is signaling is to lock. You can float down if the coach is wrong.
Make today great!
Good Morning on this fantastic Wednesday (have I mentioned it is the best day of the week?),
Stocks in the red and bonds are under pressure as well. The bond picture is not really as bad as it looks, as today is rollover day so the first drop of 15bps are a wash and we start counting from there. So the -17bps current print is really -2bps in real terms. The 10-yr is at 2.85% (a familiar place and smack in the middle of the 2.80%/2.90% range). Yes, the doldrums. Despite more Tariffs, Mr. Trump calling out Germany for being Russia’s puppet at the NATO meeting, and PPI as well as wholesale inventories coming in hotter across the board (think inflation), the bond market is not moving much. Later today we have a 10-yr Treasury auction which could certainly impact rates (yesterday’s 3-yr auction was dismal) and tomorrow we have CPI. Yes, I know we are in the middle of the trading range and not much has inspired movement, but I am a bit curious about tomorrow. This could easily be a set up for a sell off and the 10-yr jumping 10bps. I don’t see the other direction as equally likely so I would be defensive here.
Make today great!
Good Tuesday A.M.,
A bit early, as we typically see them towards the end of July and into August, but this could be the summer doldrums where markets just stagnate (at least the bond market). For more than month now, mortgage backed bonds have traded in a very narrow range (roughly 25bps) and the 10-yr has been stuck between 2.80% and 2.90% for the same time. Stepping back from the intra and inter day minutia, there has just not been much movement in bonds. We know this won’t, so the question is which way do bonds break out? It’s a very good question, anyone want to chime in with an opinion? I just don’t know. I can make a case for either direction. On the higher rate path, the US economy is doing well, stocks are doing well, and the geopolitical issue of tariffs aren’t creating any concern (at least for now). On the likelihood of rates heading lower, growth elsewhere is slowing and our yield curve is flattening out, which is a typical sign of if not a recession, at least a slowdown in the US. We do have PPI and CPI numbers this week which may give us some needed direction. Despite any evidence rates will improve, the nod always has to be to lock to protect the current market and if rates do improve, float down. Currently the 10-yr is at 2.86% and Mortgage bonds are -3bps
Not much else for now, other than thankfully we were able to collectively have a sigh of relief for the Thai soccer team that was trapped in a cave for the past 2 weeks and were all rescued.
Make today great!
Good Monday A.M.,
Bonds are giving back some last week’s gains as concerns over a trade war with China have softened (although will get ramped up again if China does not agree to stop stealing intellectual property) and news from the UK that Brexit is not a done deal. The 10-yr is at 2.85% and Mortgage Bonds are -7bps on the day. Not much else out there to drive rates today. We will have some inflation data towards the end of the week with the PPI on Thursday and CPI on Friday but for now, there is not much going on. Talks with North Korea regarding denuclearization have stalled so I would expect some louder rhetoric from Mr. Trump in the coming weeks.
There was a great piece in the WSJ this a.m. on how the American Dream no longer includes owning a home. Here is the link, but you can get the gist from the following. “Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs. Big rental-home investors have increased their home buying for the first time since 2013.Their wager: high prices, higher mortgage rates, and skimpy inventory are making home ownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.
Make today great!