Good Monday AM,

I hope you had a fantastic Easter and spring break as I did. The ten year yield is sitting at 1.70% this morning and as long as we stay below the next line in the sand at 1.75%, we are neutral. The caveat on Treasures is if we do breach 1.75% without any pause, we can expect a continued move and likely a test of 2%. Mortgage bonds are outperforming, which is a good thing, as they have been more volatile than treasuries for some time. Hopefully we can string a few positive days of green and see pricing improve,

Dan Rawitch shared an interesting comment. “In doing my weekly members video I came to realize that FED drastically pulled back on the their bond buying commitment in Dec-March. Some months buying almost nothing. Why would they do this when the ten year was already under so much pressure? Recently they did step back in and bought more than the 120 billion they promised but so much damage has been done, it will be hard to get these yields back down. It is rumored that Japan has stopped selling, but someone with a lot of fire power is still selling into every little rally we see. We will likely continue to see good economic news for the next few months as consumers get caught up on their buying and manufacturing work to fulfil this flurry of buying. I strongly believe that the buying will falter once consumers have made the purchases they delayed making during the pandemic. When this happens, the market realize all of this is transient and bonds will swing hard the other way. I am not saying that it will take this long for bonds to correct. We should see a few bounces between now and then. At the moment, play defense until we see what happens when the ten year tests 1.75%.”

A few worthwhile markets pieces to mention…

Crack in the armor… Some 10.9% of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7% a year prior, according to credit-reporting firm TransUnion. It marked the sixth consecutive month-over-month increase and the highest level in monthly data going back to January 2019. More than 9% of subprime auto borrowers were more than 60 days past due in the fourth quarter, the highest quarterly figure in data going back to 2005. The missed payments are increasing in what has otherwise been a period of relatively low consumer delinquencies, with stimulus payments, unemployment benefits, and other measures keeping many borrowers afloat. The rising subprime delinquencies point to an uneven economic recovery and a deep divergence between those who can navigate the coronavirus downturn and those who can’t. “We are seeing the separation between the consumers who are back on their feet and those who aren’t,” said Satyan Merchant, head of the auto-finance business at TransUnion. Car loans are a key indicator of how riskier borrowers are faring. The loans represent the biggest monthly debt payment for many subprime borrowers, who often don’t have mortgages or college debt. Many work in restaurants, hotels, and bars that have been hurt badly by Covid-19.

Net purchases of U.S. equities by nonprofessional investors recently fell to the lowest level of 2021 as market uncertainty continues. We will see how much longer equities rise when the fluff is gone.

If you sell a house these days, the buyer might be a pension fund. Yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans, who are armed with the cheapest mortgage financing ever, and driving up home prices. “You now have permanent capital competing with a young couple trying to buy a house,” said John Burns, whose eponymous real estate consulting firm estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in, Ryan Dezember reports.

Please remain safe and healthy, make today great!