Good Tuesday AM,
I continue to be speechless about the bond market.
Yesterday the 10-yr ran to 3.92% and mortgage bonds sold off 156bps. Today no relief in the 10-yr as that yield is pushing higher to 3.97%, aiming for 4.00% while mortgage bonds are clawing back an unimportant 20bps. The data today was just better (mostly) than expected (below). It doesn’t mean inflation is sticky and not waning, it is just more data. New Home sales are surprising, but I wonder how many of those sales are 1) at a discounted price and 2) are not truly net of cancellations. Lumber costs are back down to pre-pandemic levels and transportation costs/timing are the same. Commodity prices across the board have dropped off a cliff. This is not a bad thing. The question I want to ask is, since most businesses have been able to take price increases over the last two years and now the costs (other than labor) have receded, will corporate profits stay strong despite a rise in interest carry? If so, this would be a good time to get back into the market.
I am not sure, and not a gambler, but there is some validity to the question.
On the other side of that question from Bloomberg, Monday brought a stark warning for Wall Street daredevils: bearish sentiment in equities is far from exhausted. Goldman Sachs and BlackRock are warning that markets are yet to price in the risk of a global recession, as strategists turn more bearish on stocks for the short term. Ned Davis Research now sees a 98% chance of a looming global recession. A former Chinese central bank official warned that the Federal Reserve’s most aggressive interest-rate hike cycle since the 1980s is destabilizing global financial markets and harming other economies.
Anyway, rates are a roll of the dice for the moment.
We should have put a bottom in 40 basis points ago but didn’t. The train is running wide open, I guess it stops when it hits a big enough wall.
- Durable Goods -0.2 vs -0.4
- Durable Goods Ex Trans 0.2 vs 0.2
- FHFA Housing Price Index MOM -0.6 vs 0.7
- Case Shiller YOY 16.1 vs 17.0
- New Home Sales 685K vs 500K
- Richmond Fed Mfg 0.0 vs -1
- Consumer Confidence 108.0 vs 104.3
Off the topic of bonds, here is some “stuff” from around the wires this AM.
Redfin: Homebuyers have lost six figures in buying power over the past year, thanks to soaring mortgage rates, according to new research. It’s the equivalent of about $140,000, a new report from Redfin calculates, as mortgage rates jumped to 6% since the beginning of the year.
In August, 15.2% of home purchase agreements fell through, similar to the 15.5% in July, according to a new report from Redfin.
The shift to working from home drove more than half of the increase in house and rent prices during the pandemic and will likely drive up costs and inflation going forward as the shift becomes permanent, according to research from the Federal Reserve Bank of San Francisco.
President Biden’s plan to forgive student loans could cost $400 billion, the nonpartisan CBO said.
Please remain safe and stay healthy, make today great!