Good Wednesday AM on this best day of the week,
So sorry for the very late update. I am at a conference out of town and it started way too early and ran way too late. Still wanted to share a bit of what we are seeing.
Bonds were strong today.
The ten-year has touched the level of resistance of 3.68 (down from 3.85% in tow days), and the Mortgage bonds are tapping on the tippy top of resistance. While I like the charts and our chances of further improvement, I’m not too fond of floating at the top of a range. You have heard me say that ‘range bound is the rule’ a billion times, and breakouts are the exception. This means from a probability point of view; it is more likely that we bounce off of the resistance level and pull back toward the bottom of the range. Be careful floating for this reason. Not much news until the jobs report on Friday, which is a big day!
The Fed is trying for a soft landing but the data is just not in their favor. The important thing to recognize is the Fed has in the past (and it is likely going to be the case in 2023), kept rates elevated into a recession to stomp out inflation. How long, and how high, is up for debate. The Fed minutes from the last meeting were released and they show the same expectation. The silver lining though is the typical spread between the 10yr treasury note and a 30 yr mortgage is approximately 1.75%. that has widened to 2.75%+. The Fed does not need to drop rates, only to chabge the rhetoric and we should see rates drop a full percentage from here. Fingers crossed.
Why the Fed is heading for a hard landing. Two great slides below to answer that question.
Please let me know if you have any questions and if I can help with anything at all.
Please remain safe and healthy.