Good Friday A.M.,
Bonds opened weak again, but are holding right on top of the support level. The 10-yr at 2.93% is a bit scary on a Friday when the Dow is also down 200 points. Mortgage bonds off another 14bps. Clearly the subtle smell of inflation is wafting about trading desks. Trading is for the most part quiet since the open and there is no scheduled news today. So here is where we see the importance of the 2-yr note – 10-yr note spread becoming more evident. The spread had narrowed to 43bps earlier this week and is now at 50bps. The 2-yr has not moved, it has all been in the 10-yr note and that drives mortgage rates. For the moment, it looks like traders are thinking growth not recession and with that mortgage rates would push up. It is tough to bite the bullet in a rising rate environment but this is a time to consider a lock and look program. If rates improve, you can always float down. In either case, play defense.
How about this for some perspective into San Jose’s housing market…
A house in San Jose that suffered major fire damage is on the market for $800,000.
Enjoy the weekend and first, make today great!
Good Thursday PM,
My apology for the late start…
Data today which was in line and shouldn’t have moved the needle:
Unemployment Jobless Claims: Actual 232K, Consensus 230K, Last 233K.
Philadelphia Fed Index for Apr: Actual 23.2, Consensus 20.0, last 22.3.
Regardless Bonds opened with a sizeable gap down and for no great reason, other than some overnight selling that took us below a key support level, which triggered sell orders at the open. The news was mixed, nothing too hurtful for bonds and stocks are down a bit. Oil hit a 4 year high which is bearish for bonds as it is inflationary. Although, at a certain point, high oil prices create a drag on the economy as people travel less. The 10-yr note is at 2.91% (wow, that was fast) and mortgage bonds are -20bps. We are sitting a very long-term low, which we’ve tested twice and bounced off. If this does not hold this time, the next drop could be a long way down. Play defense…
Quick little fun fact: according to Zillow, it took 81 days to sell the median U.S. home in 2017, nine days faster than the year prior… interesting stat and not unexpected.
Make today great!
Good Morning on this best day of the week Wednesday,
There is no economic data released today so instead… I’ll mention the Golden Knights swept the LA Kings last night.. #GoKnightsGo
The comments from Dan Rawitch (below) are on point and as succinct as I could write. The 10-yr is creeping up and now at 2.85%, mortgage bonds are off 14bps. We’re back on defense for now. Again, I suspect that the 2-10 note spread is going to become a regular part of the commentary for a bit. Either mortgage rates will have to rise or we will have an inverted yield curve. Which side are you betting on? Do you like the right Twix or the left one?
Bonds have opened on the weak side and given back most of yesterday’s gains. There is no good reason for this, other than perhaps Oil just hit a 3 year high. It is interesting to note that the spread between the 2 year and 10 year treasury just slipped to a low of 42bps, a number we have not seen since 2007! An inverted yield curve has predicted the last 7 recessions. If (when) the FED raises short term rates next time, and if the 10 year does not go up alongside the fed increase, we will have a flat yield curve, which is one step away from an inverted curve. The long end of the market is telling the FED it does not need to raise rates, because it is not going up as fast as the FED. The market is much smarter than the FED! From a technical point of view…it is a tossup.
Make today great!
Good Morning on this Tad day Tuesday,
A little data today (below). May be a tad stronger but nothing to move the needle.
- Industrial Production 0.5 vs est of 0.4
- Capacity Utilization 78.0 vs est of 77.9
- Housing Starts 1.319M vs est 1.262M (great headline number but it is mostly multifamily.. not single family)
- Building Permits 1.354 vs est of 1.323M
Stocks are doing well with the Dow up 250. Is it that now with tax payments made, money is available to invest quickly? Llikely so… bonds are not losing on the improvements in stocks, which is I guess a half win. The 10-yr at 2.83% and straddling the line between potential improvement and taking one on the chin. We’ll have to see which way it goes. I’m encouraged that bonds are hanging on, but it becomes increasingly more difficult if stocks continue to gain. Mortgage bonds are flat on the day. When there is no reason we can point at to float, the better choice is to lock.
It is worth mentioning (and I suspect we will be hearing more of it soon), the spread between the 2-yr note and 10-yr note continues to shrink. Currently it is at 45bps and that’s not so good. It means the yield curve is flattening. A flat yield curve is a pretty accurate predictor that we are heading into an economic slowdown. We are in no means there yet but it is on the radar, especially if the Fed were to raise 2 – 3 more times this year alone. Playing it forward, if the Fed were to hike twice more at .25%/rate hike, to keep from an economic slowdown, long term rates (and mortgage rates) would need to move up 50bps (1/2%). Just food for thought as you are speaking with clients.
Last July, credit reporting companies removed nearly 100 percent of civil judgment data and about 50 percent of tax lien data from credit reports. As of today, they are required to remove the rest. Expectations are this could raise credit scores by 20+ points.
Make today great!
Good Monday A.M.,
The impending airstrike against Syria Mr. Trump mentioned last week happened on Saturday. There has been no military response so far from Syria, Russia, etc. and markets are not reacting to it. We did have some economic data release today the most important of which is retail sales (below) which did beat expectations.
- Index: Actual 0.6%, Consensus 0.4%, Last -0.1%.
- Ex-Autos: Actual 0.2%, Consensus n0.2%, Last 0.2%.
Stocks are improving on the day (Dow +300) and bonds are under a little pressure (10-yr at 2.84%) and mortgage bonds -6bps. There is a good amount of data this week and I am playing defense for now. We are in a downward trend and until that changes, there is more risk than benefit to floating.
Did you know that Millennials are now officially the largest group of homebuyers in the U.S?
Make today great!