December 4th, 2018 8:59 AM by Richard Sardella MLO.100007700/NMLS 233568
Early this morning, 6:00 am ET the 10 yr yield fell to 2.95%, by 9:00 am 2.96%. (see below for 10:00 am level) MBS prices in early trade didn’t change much from yesterday’s close. The yield curve is inverting, investors and analysts seeing the inversion as the historical signal that the economy may be heading for a recession. The inversion between the 2 and 5 isn’t much, but it is supporting the long end of the curve; 2 yr note at 2.831%, the 5 at 2.822%, the first inversion, albeit not much, the first since Sept 2007. The 10 yield down 3 bps from yesterday’s close at 9:00 am. The German 10 yr bund 0.289%, Japan’s 10yr 0.069%. The spread between the 2 and the 10 yr at 9:00 am 20 bps.
More unsettling news coming from the housing sector; Toll Bros. the luxury-home builder gave weaker-than-expected guidance for the first quarter, pointing to reports about a souring housing market as the cause of the slowdown. "In November, we saw the market soften further, which we attribute to the cumulative impact of rising interest rates and the effect on buyer sentiment of well-publicized reports of a housing slowdown," Toll Brothers Chairman and CEO Douglas Yearley said in a statement.
Yesterday the stock market rallied on the knee-jerk reaction to the weekend meeting between Trump and Xi; apparently, the two agreed to lower tariffs on China’s US auto imports and Trump agreed to hold off any additional tariffs for 90 days beginning on January 1st, not Dec 1st as was initially thought. In the meantime, the idea is that serious negotiations would begin to chisel out a new broad-based trade pact. Today cooler heads are saying (and believing) that any major trade deal is a long way off; it isn’t going to happen in the next four months. Traders watching for Dec 18th as the potential next hint from China; the date marks the 40th anniversary of China’s economic reforms. There is a thought that it would be a perfect time for China to send a signal about trade with the US; some think if China refrains from any remarks it would be seen as cooperation still lacking and more evidence that a trade pact is way off. In the meantime, the White House is grappling to explain the agreement Trump made with Xi, there isn’t anything on paper, and China still has not confirmed what the president has said.
The only data today; Nov auto and truck sales expected 17.2 mil down from 17.5 mil in October.
Reuters reporting today OPEC and its allies are working toward a deal this week to reduce oil output by at least 1.3 million barrels per day, four sources said, adding that Russia's resistance to a major cut was so far the main stumbling block.
Interest rates continuing to fall, an easy trade in hindsight but at the moment we still are concerned the move has been too orderly so far; almost a straight line down from 2.23% on the 10 to 2.95% this morning. Saying that, doesn’t change the reality, however, we are expecting an increase in volatility, how much longer though before some backing and filling. There is an increasing view the US and global economies may slip into a recession (2 consecutive quarterly declines in GDP), and little to no inflation are driving investors to treasuries. The US treasury market rates so much higher than other major economies and central banks. Mix in the growing belief that the Fed will hold off rate increases after the hike later this month.
PRICES @ 10:10 AM
10 yr. note: +6/32 (18 bp) 2.94% -3.5 bp
5 yr. note: +1/32 (3 bp) 2.82% -0.5 bp
2 Yr. note: -1/32 (3 bp) 2.84% +0.5 bp
30 yr. bond: +30/32 (94 bp) 3.21% -6 bp
Libor Rates: 1 mo. 2.378%; 3 mo. 2.751%; 6 mo. 2.895%; 1 yr. 3.138% (12/3/18)
30 yr. FNMA 4.5: @9:30 103.02 +5 bp (+18 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 101.92 +1 bp (+4 bp from 9:30 yesterday)
30 yr. GNMA 4.5: @9:30 103.24 unch (+14 bp from 9:30 yesterday)
Dollar/Yuan: $6.8321 -$0.0513
Dollar/Yen: 112.84 -0.81 yen
Dollar/Euro: $1.1387 +$0.0034
Dollar Index: 96.65 -0.30 (dollar continuing to weaken)
Gold: $1246.60 +$7.00 (weak dollar)
Crude Oil: $53.13 +$0.17
DJIA: 25,646.90 -179.53
NASDAQ: 7401.82 -39.70
S&P 500: 2774.75 -15.62
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.