Good Tuesday AM,

The 10 year note is at 3.71 and has only improved marginally since then.

Now at 3.69% and we need to close below 3.68% for anything good to happen. It is going to take some sort of news to break it out. And there’s no news today. There’s literally none. Tomorrow is also very light so everything’s going to happen next week when CPI and PPI come out toward the end of the week and after the Fed decision on Wednesday 6/14. I do think those inflation numbers will be tame and then from there, the sun will start to shine on rates. For now, it is really 50/50 on locking vs floating and of course be ready to play defense and lock if there is any pullback.

Two quick snippets from the WSJ:

Another looming issue for commercial property: Nearly $1.5 trillion in commercial mortgages are coming due over the next three years–and many of those are structured as interest-only loans. Typically, owners pay off this debt by getting a new loan or selling the building. Now, steeper borrowing costs and lenders’ growing reluctance to refinance these loans are raising the odds that many of them won’t be paid back. There will be deals available if you are looking.

Big Banks Could Face 20% Boost to Capital Requirements

U.S. regulators are preparing to force large banks to shore up their financial footing, moves they say will help boost the resilience of the system after a spate of midsize bank failures this year. The changes, which regulators are on track to propose as early as this month, could raise overall capital requirements by roughly 20% at larger banks on average. This will only cause tighter credit conditions and make less credit available.

And an interesting take from Bloomberg on the New Normal and I think they may be right. We may have already reset.

Business surveys have been pretty disappointing lately. And yesterday’s ISM Services report was no exception. The headline number came in at 50.3, down from 51.9 in the previous month, and below the 52.4 that economists had expected.

That being said, there are signs that within this slowdown, a lot of things are just returning to normal. This is something that Alex Williams of Employ America flagged. If you look at the anecdotal commentary from business respondents, a lot of it looks like the extremes of recent years are simply starting to fade.

Here’s a sampling of comments from the report that speak to this idea of business getting back to normal:

• “Restaurant sales continue to track positive year over year, up an average of 8 percent past month. Employment needs have leveled off, and we are in a position to evaluate and upgrade rather than just maintain. Supply-chain pressures have eased overall, with some categories still hot spots. We are in a position to continue investing in technology upgrades and restaurant remodels.” [Accommodation & Food Services]
• “Electronic-components supply is strong, and lead times are nearly back to pre-pandemic.” [Information]
• “Lead times are starting to shorten, due in part to greater transportation availability. Prices, in general, are continuing to increase, but at a slower pace. Supply chain is becoming much more reliable.” [Public Administration]
• “Everything seems to have leveled off: not getting any worse, not getting any better.” [Professional, Scientific & Technical Services]
• “Business has significantly increased, with more orders, newer customers and more activity in general. More end users are getting back to business as usual, fighting for lower prices and taking a few more days to pay. The leverage point seems to have shifted back to end users, which is healthy.” [Transportation & Warehousing]
• “Lead times are starting to shorten, due in part to greater transportation availability. Prices, in general, are continuing to increase, but at a slower pace. Supply chain is becoming much more reliable.” [Public Administration]
• “Supply is plentiful, freight is moving quickly and costs are coming down. This is a 180-degree change from a year ago. Also, sales demand is down.” [Wholesale Trade]

Not all of the comments are positive. There was one in particular about credit that’s worth watching, as it remains a source of concern.

• “Economy is slowing amid increased financial banking and leasing activity. Credit standards have increased, and approvals have fallen — thus, a tight credit situation.” [Management of Companies & Support Services]

Either way the question still remains the same. Does normalization of activity (pace of demand, health of supply chains, labor availability etc.) translate into stabilization of prices? That’s TBD.

Please remain safe and stay healthy, make today great!!!