Good Thursday AM,

What a beautiful day outside and what a cloudy day in the bond market.  Bonds again opened weak. The 10-yr now at .84% and the yield is above a pretty important metric: the 200 day moving average. Nothing good happens here, as you can imagine. When the yield is worse than the average has been for the past 200 days, the trajectory is fairly defined. Is it the talks of stimulus, expectations for what happens in 2 weeks, massive amount of sovereign bonds being issued which should/will push rates higher, other concerns?

Whatever/whichever it is, the bond market is sending a signal. Without some reason to think and act otherwise, yields are going to rise. The one unknown is how high will the Fed allow yields to go. The Fed is well aware that higher yields will constrain growth which is not what the country needs. Every Fed member is asking for more stimulus and I suspect the Fed is going to step in here shortly. Does that mean a treasury yield of .90? Maybe but keep in mind that as yields increase the price of a bond decreases so the Fed is going to lose money on the bonds it previously bought unless they hold them to maturity if they don’t step in to keep yields lower. I am confident the Fed will step in a larger way soon, it is just bumpy until then. There was a large drop in jobless claims today and another record for existing home sales. I wonder if the reduction in claims was as much about missed data and people leaving the workforce as it was about new jobs being created. I don’t think many businesses are hiring in a meaningful way. Mortgage bonds are outperforming treasuries for the moment, but the only decision here it to be defensive. Being below the 200 day moving average really has no safety net. The final presidential debate is tonight. That does have the potential to move markets. I would not recommend floating.

Relevant and Interesting stats from Ellie Mae on the Time to close….

• The average time to close all loans increased from 49 days in August to 51 days in September.
• The average time to close a refinance increased to 54 days, up from 50 days in August.
• The average time to close a purchase increased from 45 days in August to 47 days in September.

Here are two great charts hot off the press from the MBA. Not to overwhelm, but the first chart has some interesting stats on economic growth, but the real outlier is the last line of the 10-yr Treasury forecast. That will drive mortgage interest rates. There is an expectation that starting Q2 2021 rates will start moving up.

The second chart which is specific to Mortgage Finance offers a glimpse into property appreciation, but also confirms that rates will increase. The reason appreciation is muted is because rates are increasing. The moral of the story is now is a great time to sell. Property value gains will be muted in the future and the potential higher cost of financing will likely make it net negative to hold.

Please remain safe and healthy, make today great!