Good Morning on this best day of the week, Wednesday,
Renewed banking fears created a massive flight to safety as investors fled toward bonds.
The catalyst to the renewed fears is a pending disaster at Credit Suisse bank. The bank has been on the ropes for over a month and suddenly things are much much worse as their shares plunge over 30%. On top of this, PPI came in at -01 and retail sales also came in at -04 for the headline number and -01 for Retail Sales ex-transportation.
The ten-year is now down to 3.40% as it broke below Mondays low. It is likely at this point that we retest the low of Feb 3rd which is 3.35%. Mortgage Bonds are +61bps, which is the level we touched on Monday before falling back down. It is possible that things get worse from here and we see a contagion that could take the 10-yr yields into the 2s, which only a few days ago was not expected until the 3rd or 4th quarter.
Black Swan events are impossible to predict which is why they are considered black swan events. It is also impossible to predict the Fed’s next move AND they are in their required quiet period until next week’s Fed meeting. So, we will hear NOTHING and the market will be forced to guess. Bonds thrive on fear which is why we may see tremendously lower rates. For now, I can only tell you that the next level down for the ten-year is 3.35%.
Beyond that, all we can do is stay on top of the situation and take each day as it comes.
As credit quality starts to slowly taper, and fear in the credit markets over recession, disruption, bank failures, etc., increase (and as delinquencies rise as they slowly are), credit availability will of course tighten. These are system ebbs and flows and is a constant ongoing process. We are on the flow side of this wave until credit markets are better balanced. Mortgage credit as a result is at its tightest in 10 years.. It is important to know who you are in business with.
Please remain safe and stay healthy, make today great!