Good Tuesday AM,

The data is picking up a bit.

Today we had ISM Services 52.7 vs 52.0 and more importantly, JOLTS 8.733M vs 9.3M. The JOLTS report was a big deal and markets are reacting to the weaker data. The 10-yr has improved back to 4.17% and we are heading to 4.11. From there (assuming nothing breaks in between now and then), we are likely to test 4.00%. Think about that, November 1 we are looking at 4.96% and now we are talking about 4.00%. If that’s not a sign to buy now while there is little competition, I am not sure what is. Rates will continue to improve; however, activity will pick up as well and with the limited inventory, prices will likely be going up. Lots more data coming this week so while I think we are back in a floating bias (for the time being), it is important to play defense. I would not recommend floating into Friday’s jobs report.

One interesting piece that has nothing to do with the US (well, not much to do with the US). Chinese shadow debt. Banks allow for overleveraging as much of the debt goes undisclosed. It is becoming a problem.

China’s Colossal Hidden-Debt Problem Is Coming to a Head

China is trying to defuse a financial time bomb that could severely damage its banking system. Cities and provinces across the country have accumulated a massive amount of hidden debt following years of unchecked borrowing and spending. The International Monetary Fund and Wall Street banks estimate that the total outstanding off-balance-sheet government debt is around $7 trillion to $11 trillion. No one knows what the actual total is, but it has become abundantly clear over the past year that local governments’ debt levels have become unsustainable. Economists say a significant chunk of the hidden debt—their estimates range from $400 billion to more than $800 billion—is particularly problematic and at high risk of default. As a result, Moody’s Cuts China’s Credit Outlook to Negative.

Please remain safe and stay healthy, make today great!