October 4th, 2018 9:35 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday the dam broke and the 10-yr easily cleared the support at 3.11%. Once it fell, selling grew like a dandelion in July. The selling took on a life of its own as traders and investors were forced to sell and cover whatever long interest rate positions, driving rates even higher. The headline for the selling in rates is being attributed to the bigger increase in ADP jobs than was expected (230K vs 179K expected) and data released last week by the Fed with its quarterly forecasts of continued economic growth. If the jobs increases weren’t enough, yesterday’s ISM manufacturing index sky-rocketed, increasing to 61.6, the strongest since August 2005. In the data released last week the Fed’s outlook for inflation between now and 2020 was unbelievably low at 2.1%. Since last week’s news, wage increases are on the way, and eventually, consumer prices will increase.
You just can’t fight the tape; arguments can be made that the spike in rates yesterday may be overdone and driven by quick short-term decisions. Expect a generally quiet session today after the route yesterday and ahead of tomorrow’s September employment data.
At 9:30 am the DJIA opened down -44, NASDAQ dropped -29, and the S&P lost -6. The 10-yr was at 3.19%, unchanged from yesterday but earlier at 3.22%.
Weekly jobless claims at 8:30 am were at 207K, down -8K — a little lower than expected but overall in line.
At 10:00 am August factory orders were thought to be +2.1%. As released, orders increased 2.3%. But the more important part — excluding transportation orders (aircraft) — they were up +0.5%.
The 10-yr is at its highest since 2011. Yesterday’s huge selling was one of those moves that occasionally happen, particularly when in this case the 10-yr was widely expected to increase but had held quite well, muddling traders and investors that there was support at this year’s highest level going back to mid-May. Once a new high occurred, selling accelerated at warp speed. The Fed’s unbelievable low inflation forecast in last weeks’ quarterly revisions also relaxed the inflation outlook. We still think the Amazon announcement increasing its minimum pay to $15.00/hr played heavily in the inflation outlook. It should be relatively quiet today compared to yesterday. Tomorrow’s employment report likely will add more volatility regardless of what the data shows.
PRICES @ 10:00 AM
10 yr. note: +1/32 (3 bp) 3.19% unch
5 yr. note: -1/32 (3 bp) 3.05% unch
2 Yr. note: -1/32 (3 bp) 2.89% +1 bp
30 yr. bond: -4/32 (12 bp) 3.35% +1 bp
Libor Rates: 1 mo. 2.279%; 3 mo. 2.408%; 6 mo. 2.608%; 1 yr. 2.927% (10/3/18)
30 yr. FNMA 4.0: @9:30 100.28 -6 bp (-53 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 101.68 -4 bp (-23 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 101.02 -5 bp (-55 bp from 9:30 yesterday)
Dollar/Yen: 114.07 -0.46 yen
Dollar/Euro: $1.1515 +$0.0035
Dollar Index: 95.81 -0.18
Gold: $1207.30 +$4.40
Crude Oil: $75.57 -$0.84
DJIA: 26,675.11 -153.28
NASDAQ: 7944.71 -80.38
S&P 500: 2909.25 -16.26
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.