March 12th, 2019 9:34 AM by Richard Sardella MLO.100007700/NMLS 233568
Overnight the 10 yr note yield increased to 2.65%, and at 8:30 am ET it was back to 2.64% after the release of February CPI data. The consumer price index rose +0.2% as expected, yr/yr +1.5% as expected. The core was up +0.1% against forecasts of +0.2%, yr/yr it gained +2.1%, down from 2.2% in January — another report confirming no inflation pressures. Declining prices for autos and drugs were a factor. The slight declines from what was expected hit the dollar with the knee-jerk reaction that inflation not only won’t increase but is declining. That idea while not worth much is one report and doesn’t imply any trend to disinflation, but we will take it for MBS markets and mortgage rates. Shelter costs, which account for about a third of CPI and mainly include housing expenses, continued to hold up, with the fourth straight monthly increase of 0.3%. Owners-equivalent rent, one of the categories designed to track rental prices, rose 0.3%, as did rent of primary residence.
Also adding a little to the rate markets, at 6:00 am the NFIB (National Federation of Independent Businesses) reported its index for February at 101.7, weaker than 102.5 estimates but still fractionally better than 101.2 in Jan; the index in Jan dropped 3.2 points. Employment plans lost ground for a second straight month with a turn lower for earnings trends the biggest negative in the month. One plus is that the outlook for the economy, after dropping sharply in January, did turn positive in the month.
At 1:00 pm this afternoon the Treasury will sell $24B of 10-yr notes re-opening the issue from February. Yesterday the 3-yr didn’t meet good demand but the 10 carries more significance for mortgages.
Auto sales (SUVs) have been running very hot but may be slowing in the outlook. Moody’s lowered its 2019 growth forecast for worldwide light vehicle sales by more than half, saying they won’t totally recover from a slowdown in the latter part of 2018, cutting its rating from stable to negative. Not a good thing, and adds more concern the US economy will not meet the growth goals that have been forecast. Although the 2019 outlook had already been lowered, if auto sales fail the growth outlooks from 2 to 3%, GDP growth this year may be too optimistic and adds to the belief that interest rates are going to continue to move lower.
At 9:30 the DJIA opened down -27, the NASDAQ was up +15, and the S&P added +6. The 10-yr note yield was at its key level, 2.63%.
The Boeing 737 Max 8 crash has all but stopped it from flying, and it’s looking more like the US is the only country that hasn’t grounded them. No black box info yet but no country wants to take a chance. Two crashes in five months looks questionable.
We remain bullish for the outlook on rates; once 2.63% is decisively broken the 10-yr will likely move to the next technical level, the low yield in the last two years at 2.55%. When it did drop to that level at the beginning of the year it very quickly reversed and climbed back to 2.80% in two weeks.
PRICES @ 10:00 AM
10 yr. note: +3/32 (9 bp) 2.63% -1 bp
5 yr. note: +2/32 (6 bp) 2.43% -1 bp
2 Yr. note: +1/32 (3 bp) 2.46% -1 bp
30 yr. bond: +2/32 (6 bp) 3.03% unch
Libor Rates: 1 mo. 2.498%; 3 mo. 2.608%; 6 mo. 2.679%; 1 yr. 2.869% (3/11/19)
30 yr. FNMA 4.0: @9:30 102.23 +6 bp (unch from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.81 +4 bp (unch from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.86 +5 bp (+4 bp from 9:30 yesterday)
Dollar/Yuan: $6.7080 -$0.0184
Dollar/Yen: 111.16 -0.6 yen
Dollar/Euro: $1.1282 +$0.0038
Dollar Index: 97.06 -0.30
Gold: $1296.80 +$5.70
Crude Oil: $47.19 +$0.40
DJIA: 25,591.61 -59.27
NASDAQ: 7572.11 +14.05
S&P 500: 2789.81 +6.51
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.