Good Tuesday AM,

 

The bond market is getting shellacked this morning. The 10-yr is at 1.29% and at the highs since last March and mortgage bonds are off 40bps. This is not a great way to start the holiday shortened week. The selloff in bonds has intensified since last week. The gap down in both treasuries and MBS is far beyond anything that makes sense!

 

From Dan Rawitch:

 

Market participant will tell you that the selling stems from the absence of any sort of catalyst that would cause rates to drop, yet there are reasons for rates to rise. This is the market perception at the moment. People believe that with a vaccine and stimulus, we will begin to see a full recovery in the economy AND some inflation. I assure you there is NO inflation coming and there is no full recovery on the horizon. We cannot put inflation and multi-trillion dollar national debt in the same sentence. Debt is a drag on both household and national economies and when economies fall, we get deflation. Yes, there was a period in the early 80’s when we saw Stag-flation, but this is rare and the circumstances back then could be any different than they are now. Also, how can the economy recover when we have:

 

• Small business optimism dropping like a rock
• Consumer confidence falling
• 800k Jobless claims per week!! More than at any time in history
• Citi-bank surprise index moving against us
• Corporate debt at all time highs
• The velocity of money falling
• Almost no new jobs being created
• RISING INTEREST rates! Yes, the false belief of a growing economy which drives up rates, will be the very thing that further stalls the economy.
• I could go on!

 

The selling will end, I wish I could tell you when. Just know that the pendulum always swings too far in both directions. The farther it swings to the left, the sharper the swing will be to the right. Meanwhile, let’s not assume this is over.

 

If you want the visual on how the 10-yr has been trading since last summer, please see below… its not friendly and our only saving grace for mortgage rates is that they never improved fully when they had the opportunity to (volume constraints) so we have not felt the impact on the way up either.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

And here is an interesting chart on inflation across several components dating back to 1996. Education has outpaced everything else…

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please remain safe and healthy, make today great!