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Market Snapshot 4.4.23- Good Day For Bonds

Good Tuesday AM,

It is a good day for bonds and rates as the data was weak.

Factory Orders at -0.7 on expectations of -0.5; JOLTS (Job Openings, which has dropped substantially and is a very, very important employment metric) at 9.931M vs expectations of 10.4M. Additionally, Jamie Dimon (CEO of Chase Bank) came out with a warning that the pain in banking is not over. That was an ominous statement from someone who is revered by the business segment, traders, and the government. Today’s action has the 10-yr through an important line of resistance and on its way to the next. Currently at 3.34% and could be heading to 3.25% (fingers crossed). Mortgage bonds, which did not improve yesterday, are following their big brother higher in price and lower in rate, as well.

Mortgage bonds are sitting at a line of resistance as well and if we break through (a big if), we could see some much-improved pricing. It is a dicey situation, as breaking through resistance may require some more weak employment data (ADP tomorrow, Unemployment claims Thursday, and the Jobs report on Friday). It is a gamble right now to float loans through this gauntlet of data, but it could pay off big with lower rates.

Still the better choice is to lock on this improvement and float down if rates improve further.

Mr. Trump to be arrested and booked today. Did you know he is not the first President to be arrested? 151 years before Trump was indicted, Ulysses S. Grant was arrested for speeding on a horse-drawn carriage and paid a $20 fine to settle the charge.

Back to our regularly scheduled programming. Let’s talk about housing. I love this piece on how inventory will constrain buyers and keep prices firm. Buy the dip!

Last year saw a historically large rate shock, with the Fed hiking massively to fight inflation.

Of course, one part of the economy that’s very directly exposed to rates is the housing market. The rate on a typical 30-year mortgage started 2022 at 3.3%. It ended the year over 6.6% and today it’s around 6.75%.

With rates having moved up so much, so fast, it stood to reason that the housing market was facing some kind of imminent doom.

Yet so far that hasn’t materialized. At all. And in fact, just yesterday we got the latest reading on home prices from Black Knight, indicating that actually prices rose modestly in February. Below is the key price chart (a full slide deck is here):

Back in October on the Odd Lots podcast, we talked to Morgan Stanley analyst Jim Egan who predicted that the housing market would remain fairly firm, largely due to a lack of inventory. Unless you get a big spike in unemployment, you’re not going to get a big spike in forced selling, and so you just don’t get many new houses on the market.

That’s exactly what we’ve seen. The unemployment rate has remained low. And per Black Knight, inventory fell in February. New real estate listings continue to fall well below pre-pandemic levels for the same month.

Data from Mike Simonsen of Altos Research shows the same thing. Demand is surprisingly strong, and total available inventory is just way below pre-crisis levels.

Mike’s full thread of fresh housing data is worth checking out here.

Here you have this financial asset which on the surface is highly exposed to rates. And in some sense it clearly is. But unlike in 2008/2009 when we had the housing crisis, we haven’t had a big surge in unemployment. And so we haven’t seen the surge in forced selling and active listings. And so prices remain robust, even with the higher monthly price tag.

Please remain safe and stay healthy, make today great!