Good Tuesday AM,
With no real economic data on the schedule until Thursday, markets are left to continue to mull over what has happened or what has been said. Not a great way to move forward (the rearview mirror is much smaller than the front windshield). There are a few Treasury auctions this week. Today was a 3-yr auction and that was not stellar. It has pushed the yield on the 10-yr back to 4.03. Mortgage bonds are off 37 basis points from their earlier high. Tomorrow is the 10-yr auction which is likely to have much more impact on rates.
CPI is Thursday (along with weekly unemployment claims) and that will set the stage for the next few weeks of rate movement (until the Fed meeting at the end of the month). Economists surveyed by the WSJ on average expect annual inflation to pick up to 3.2% in December from 3.1% in November. Core inflation—which strips out volatile food and energy costs—is forecast to ease to 3.8% from 4%. That’s still above the Fed’s target but the downward trajectory has investors and economists penciling in interest-rate cuts from the central bank starting later this year.
Right now, markets are 60/40 that the Fed will cut rates in March, and also are betting on the Fed to slow down the pace of selling off its balance sheet (quantitative tightening, which pressures mortgage rates higher with more supply and less demand). After Friday’s short-lived shift in sentiment, markets are once again firmly betting on dovish Fed action, helping keep mortgage rates at the current levels.
While I believe rates are going to continue to improve, I do not recommend floating into a big news event like CPI.
Life expectancy in the US keeps going up and many of today’s 5-year olds are likely to live until 100.
Please remain safe and healthy, make today great!