Good Friday the 13th AM,

We’re probably going to be in this range for a little while. So probably still okay floating.

There’s really, the only thing that came out today was the Consumer sentiment and it got hammered, hammered Markets were looking for 67.5. We got 63. Three. Previous month was 68. This is one of the truly forward-looking indicators that we see. And what’s interesting to see here is the outlook. So how are you feeling? Feeling about the future dropped from 66 to 60. That’s very, very telling and should be bond friendly. Next week’s exceptionally light on the calendar. We have retail sales and not a whole lot more.

I am a math guy, so I love this stuff.

Thursday’s brutal bond selloff was a good reminder that Treasuries are a volatile place right now. All year, Wall Street pros have been sinking record sums of cash into the world’s largest Treasury ETF on a high-conviction bet that interest rates have peaked — and all year, they’ve been wrong.

The big reason: Even a modest rebound in long-dated government debt would spark bumper returns.

The bullish appetite makes sense when you think of basic investing math. With yields on 20-year Treasuries hovering near 5%, a drop of 50 basis points would deliver a total return of more than 11% over the next 12 months, according to data from F/m Investments. On the flip side, a 50 basis point rise would only result in a loss of about 1.1%. It’s just math…

And on inflation, recent progress bringing inflation down stalled in September, offering the latest sign that the path to fully extinguishing price pressures remains bumpy. The good news: Price gains have slowed markedly from the 40-year highs recorded last year, particularly when looking at a gauge of underlying, or “core,” inflation that excludes volatile food and energy prices.

But the bad news is that after a sharp slowdown in core inflation earlier in the summer, those prices rose at a modestly faster rate last month. The latest inflation data highlight the risk that without a further slowdown in the economy, inflation might settle around 3%—well below the alarming rates that prompted a series of rapid Federal Reserve rate increases last year but still above the 2% inflation rate that the central bank has set as its target.

Key numbers: September’s consumer-price index rose 3.7% from a year earlier, the same as in August but far below the 9.1% recorded in June 2022. Core prices rose 4.1% from a year earlier, down from 4.3% in August. On the month, they increased 0.3% for the second straight report.

Social Security Is Giving Retirees a Raise in 2024. Is It Enough?

Retirees’ Social Security checks got much bigger cost-of-living adjustments than usual the past two years. That won’t be the case in 2024. Starting in January, the average monthly Social Security check for retired workers will rise 3.2%, or $59, to $1,906, the Social Security Administration said Thursday. That is a significantly smaller increase than the 8.7% raise retirees received this year, reflecting a cooling in inflation.

And from the MBA on Purchase applications Payment Index (being at the top of this list is not a great thing as our coast vs income is too high)

The monthly cost burden of purchasing a new home, as interest rates and house prices rose precipitously in 2022, has continued into 2023. Indeed, this week’s Weekly Applications Survey (WAS) release noted that the 30-year fixed mortgage rate is at 7.67%—the highest level since 2000—and the Federal Housing Finance Agency’s House Price Index shows that house prices continue to appreciate even as interest rates have eclipsed 7%. MBA’s Purchase Applications Payment Index (PAPI), which uses WAS data to measure how new fixed-rate 30-year purchase mortgage payments vary across time relative to income, increased by 29.2% in 2022 and reached a series high in May 2023 when it was 43.7% higher than at the start of 2022. Since then, despite 30-year rates continuing to climb, the index has decreased slightly as median loan application amounts have moderated.

In this week’s MBA Chart of the Week, we show the PAPI series—constructed using median WAS payments and median income—for the nation and six selected states. The red line, which shows the national PAPI series, reached 177.4 in May 2023. It has remained in record territory and was 175.4 in the most recent PAPI release (that uses August WAS data). Similar patterns are evident across the country. In Idaho, the state with the highest PAPI in August, the index is up 71% since it first overtook Nevada in the number-one spot in October 2020. Even lower PAPI states—i.e., states where affordability has eroded the least relative to March 2012—such as Connecticut and Pennsylvania, have seen their affordability levels decrease substantially in the last year and a half. For example, at the start of 2022, the PAPI in Connecticut was 74.8 (meaning that the median loan payment relative to median income was 25% less than in March 2012). This trend, however, has reversed since the start of 2022, with the latest PAPI reading at 126.0. In other words, purchase affordability in Connecticut has eroded by about two-thirds in the last 20 months.

Tellingly, PAPI was higher in every state and the District of Columbia in December 2022 than in December 2021. Moreover, it was higher in August 2023 in every state and DC than in December 2022. The good news is that we may be near the top. MBA is forecasting that mortgage interest rates will steadily decline over the next few years and that median existing home sales prices will also decrease through 2024. This should reduce PAPI levels, but it may not be until 2025 that the index retreats to meaningfully lower levels and affordability notably improves.

Please remain safe and stay healthy!