Good Thursday AM from your Hometown Lender,
Some important data out today. GDP in as expected, Durable Goods a bit stronger, and Unemployment claims a bit weaker. Bonds are taking a pause for the moment from the improvements we have seen over the past few weeks. The 10yr is sitting at 4.29% which is right at the top of the trading channel as are Mortgage Bonds. Both are coiled and waiting by the ready for tomorrow’s PCE report. Markets are looking for a print of 2.6% which is down from last month’s 2.8%. If we get a 2.6% report, I think rates will continue lower, a strong report will stall the improvement for a bit.
That said…
The 10-year Treasury yield passed below the 3-month yield on Wednesday, sparking fears of an economic downturn. An “inverted yield curve,” is the Federal Reserve’s favorite recession indicator and has a stellar prediction record for downturns going back decades. But that’s not to say a recession is guaranteed: The last yield curve inversion occurred in October 2022, and a recession has yet to happen more than 2 years later. Still, investors are worried that the growth expected from a second Trump administration may not materialize.
On the back of the inverted yield curve, investors in US government bonds are starting to bet the Federal Reserve will soon need to pivot from worrying about sticky inflation to fretting about slowing economic growth. That sentiment is what has helped lift the price of 10-year Treasuries and push down interest rates.
From Bloomberg:
Traders this week resumed fully pricing in two quarter-point cuts this year in the Fed’s benchmark interest rate, and most of a third one next year, to a level of about 3.65%. Morgan Stanley says if the market prices in a drop to 3.25%, the 10-year yield can breach 4%.
The bank expects inflation data to be released Friday — the prices indexes for January personal consumption expenditures, or PCE — to show a slowdown in the pace of price growth that could be decisive.
If central bank “rhetoric grows more dovish as a result of better core PCE inflation data, we think that investors will buy more duration – allowing market-implied trough rates to fall further,” Morgan Stanley strategists led by Matthew Hornbach said in a note.
Fingers crossed for a low reading on the PCE report tomorrow but I would not float loans into it.
Stay safe and make today great!!!
Stay safe and make today great!!!