Good Wednesday AM,

Bonds under some early pressures are clawing back a bunch of what was lost.

Still not out of the woods yet but coming close. Not much new today other than Federal Chairman Powell at the Semi-Annual congressional testimony today (two-day affair, today is day one) affirmed that more interest rate increases are likely ahead until additional progress is made on bringing down inflation. Speaking a week after Federal Open Market Committee officials decided for the first time in more than a year not to push rates higher, the central bank leader indicated that the move likely was just a brief respite rather than an indication that the Fed is done hiking. Markets have already priced in one hike for July but not a second hike. However, some of the biggest buyers in credit markets are betting the Federal Reserve will reverse course on rate hikes soon. T. Rowe Price, Allspring Global Investments and AllianceBernstein are among investors seeking opportunities in longer-dated, investment-grade corporate bonds, which they believe will benefit more when an economic slowdown prompts the central bank to cut rates. While it’s a risky bet, such debt has outperformed its peers this year. “Bottom line is that the market believes the Fed will cut and cut meaningfully, and that’s gonna drive long duration returns very positive,” said David Knutson, senior investment director at Schroder Investment Management.

U.S. home builders’ broke ground on more new projects in May, as strong demand from buyers and a limited supply of homes for sale outweighed higher costs brought on by rising interest rates. Housing starts jumped to an annual rate of 1.6 million last month, the Commerce Department said, the fastest pace in more than a year. The monthly numbers can be volatile and are often revised, but the latest report showed multifamily construction ran at the hottest pace since 1986 while single-family projects rebounded after matching an almost three-year low in April.

A steady stream of new projects and supply-chain snarls that dragged out the time needed to complete them mean that there is a large supply of apartments and condos coming to market. The number of multifamily units under construction matched the highest level in records dating back to 1970. That could ultimately help tamp down rents, good news for renters and the Federal Reserve’s efforts to control inflation.

Want to know what the tipping point is for rates, so sellers are willing to trade for their next home?

Likely 5.5% for a 30yr fixed rate which we would already be at if spreads between treasuries and mortgages could normalize. It is coming. For illustration, 91.8% of U.S. homeowners with a mortgage have an interest rate below 6%. That’s down from a record high of 92.9% in 22Q2. The tiny decline over the course of a year shows how “rate lock” has frozen existing homeowners in their tracks, and why existing inventory is so limited. In fact, 82.4% of mortgagees have a sub-5% rate, 62% have a sub-4% rate and 23.5% have a sub 3%-rate.

Fingers crossed and saying our prayers…

The U.S. Coast Guard said Canadian aircraft had detected underwater noises, as the clock ticked down in the race to find the missing submersible and the five people aboard before the air supply runs out. Remote-operated vehicles were relocated to explore the origin of the noises but didn’t find anything, the Coast Guard said. The people aboard the submersible, which was on a trip to the wreck of the Titanic, had around 40 hours of oxygen left as of Tuesday afternoon, according to the Coast Guard.

Today is the summer solstice, marking the astronomical first day of summer in the Northern Hemisphere. Yes, there is less sunlight going forward.

Please remain safe and stay healthy, make today great!