October 13th, 2020 9:39 AM by Richard Sardella MLO.100007700/NMLS 233568
The bond and mortgage markets were closed yesterday for Columbus Day; the stock market was open. The DJIA +251, NASDAQ +296, S&P +57.
This morning the 10 yr. started at 0.78%, unchanged from Friday, but quickly the yield fell to 0.74% by 8:45 am ET. MBS prices at 8:00 am ET -14 bps from Friday, then scooted up to -8 bp. Early this morning (6:00 am), Sept NFIB small business optimism index expected at 100.9 from 100.2 in August, increased to 104.0.
At 8:30 am ET, Sept CPI, +0.2% as expected, yr./yr. +1.4% as expected; ex-food and energy +0.2% as thought and yr./yr. +1.7%. Prices rose in September at the slowest pace in four months, signaling little threat of accelerating inflation as the economy recovers. The report showed used-vehicle prices jumped by 6.7% from a month earlier, the most in data back to 1969. At the same time, inflation was restrained by a modest gain in shelter costs, which rose 0.1% for a second month. Compared with September 2019, shelter costs were up 2%, the smallest annual gain since February 2012.
At 9:30 am ET, the DJIA opened -17, NASDAQ +5, S&P -6. The 10 yr. at 9:30 am 0.74% -3 bps from Friday. 2.0 FNMA 30 yr. coupon at 9:30 am -8 bps from Friday, and -8 bps from 9:30 Friday morning; 2.5 coupon at 9:30 am -12 bps, and -20 bps from 9:30 am Friday.
This week kicks off earnings season with banks reporting. JPMorgan Chase, the biggest U.S. bank, posted an increase in earnings, fueled by a 30% jump in market revenue as elevated volume kept its stock and bond traders busy. It also surprised expectations by cutting its reserve for credit losses by $569 million, after adding $20B to the first half allowance, as charge-offs of bad loans declined from a year earlier.
Technically speaking, the 10 yr. increased to 0.79% on Friday before backing down this morning. 0.80% was our target after the note breached 0.74% most of last week. The overbought condition based on the 9-day RSI is still bearish, but the index has now slipped back to where we no longer see the 10 yr. as being overbought. Also, today the 10 yr. is testing its 20-day average and still holding above its 40-day average.
Fundamentally, markets have increased the belief that Biden will win the election in 21 days; equity markets like it, interest rate markets not so much. The thought is that a Democratic sweep will explode increased spending that will drive stocks higher; on the 10 yr. though, the thinking is that the increased spending will increase inflation to over 2.0% and push rates up somewhat.
PRICES @ 10:00 AM ET
10 yr. note: 0.73% -5 bp
5 yr. note: 0.30% -4 bp
2 Yr. note: 0.14% -2 bp
30 yr. bond: 1.52% -5 bp
Libor Rates: 1 mo. 0.144%; 3 mo. 0.228%; 6 mo. 0.242%; 1 yr. 0.347% (10/12/20)
30 yr. FNMA 2.0: @9:30 103.11 -8 bp (-8 bp from 9:30 Friday)
30 yr. FNMA 2.5: @9:30 104.53 -12 bp (-20 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.20 +8 bp (+1 bp from 9:03 Friday)
Dollar/Yuan: $6.7437 -$0.0022
Dollar/Yen: 105.59 +0.27 yen
Dollar/Euro: $1.1752 -$0.0061
Dollar Index: 93.46 +0.40
Gold: $1899.50 -$29.40
Crude Oil: $40.04 +$0.61
DJIA: 28,794 -40
NASDAQ: 11,875 -0.75
S&P 500: 5329 -5
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.