Good Monday AM,
Bonds prices are down pushing rates up a bit. The 10-yr is at .63 and mortgage bonds off about 10bps. Typically stocks and bonds trade inversely, but today the Dow is down as well- 200 points. I would attribute this to the Fed just limiting its purchases a bit and allowing the market to find some balance. If bond prices fall much more, I am sure big brother will step in to buy more. I don’t think the same holds true for the stock market. Warren Buffet held the Berkshire Hathaway annual meeting virtually over the weekend. I cannot imagine the cost to Omaha losing such an incredible and large live convention (just one more unintended consequence of the virus). Mr. Buffet shared that for Q1, Berkshire lost nearly $50b. An amazing number considering the economy was only impacted the last 20 days of March. Equally as important, though, was his take on the airline industry, which he divested all of his investments in. Not seeing a clear road back (not knowing how/when/will consumers come back to flying) the investments are gambling, not investing. That speaks volumes when considering how important air travel is to our economy. It touches almost everything. Business meetings, hospitality, oil, etc. A tough road back if people won’t travel.
Since it is May, we should talk a little about forbearances, which continue to mount. As there is more data, I will share it. However currently, there are more than 7% of loans in forbearance. That figure is expected to double to 15% in the coming months as people lose jobs and incomes as a result of coronavirus-related lockdowns. The forbearance rate was highest — 10.5% — among loans from the Federal Housing Administration and Veterans Administration, which are available to people with lower credit scores and smaller down payments. The loans have $841 billion in unpaid principal balance, up almost 12% from a week earlier. At these levels, mortgage servicers must advance $2.8 billion in principal and interest payments to holders of government-sponsored mortgage-backed securities every month. Including other loans, the monthly total climbs to $4.2 billion, as the following chart shows.
Lots of data this week with the most important of the month, the Jobs report, coming out Friday a.m.
Remains safe and keep healthy.
Make today great!
