At 6 am ET this morning the 10 yr. note traded down 4 bps to 3.05%, by 8 am at 3.13% +4 bps, at 9 am 3.11% +2 bp. MBSs opened down 20 bps but improved to -16 bps at 9 am. Stock indexes continue to gain this morning, at 10 am the DJIA +202.
Financial markets leaning toward the end of higher rates and inflation next year; a pullback in commodities and the prospect of easing price pressures prompted traders to price in a peak for Fed rate hikes by the end of the year. If the Fed does what is currently expected, by the end of this year the FF rates will have increased 350 bps; 25 bps in April, 75 at the June meeting, 75 bps expected at the July meeting, 50 bps at the Sept, November, and December meetings. Yesterday Jerome Powell added additional emphasis that the Fed is serious about ending inflation even it means an economic recession. Traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by in 2023. In the meantime, investors continued to yank cash from equity funds, which recorded their biggest outflows in nine weeks amid rising recession risk. About $16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp. said, citing EPFR Global data.
The decline in commodity prices adding to the idea inflation may have topped. Raw materials prices have contributed to a moderation in market-based measures of inflation expectations. Oil headed for its first back-to-back weekly loss since early April amid a broader selloff in commodities markets. Lumber prices falling. Copper slipping, aluminum, gold, silver, tin, nickel, all lower today. Next Thursday, the May PCE will be reported, if it indicates inflation has ebbed markets will see it as confirmation inflation increases have flat-lined at present levels, leading traders and investors to expect the Fed may reduce its present plans for tightening. Inflation since March hasn’t declined, but not increasing. Commodities sliding on recession concerns.
At 9:30 am the DJIA opened +252, NASDAQ +118, S&P +35. 10 yr. at 9:30 am 3.10% +1 bp. FNMA 5.0 30 yr. coupon -12 bps and -13 bps from 9:30 am yesterday.
At 10 am May new home sales, expected at 587K from 591K in April, sales reported sales increased to 696K.
Also, at 10 am the final June U. of Michigan consumer sentiment index, expected unchanged from mid-month at 50.2, reported at 50.0.
Yesterday the 10 yr. tested and rejected 3.00%; not expecting the 10 will fall below 3.00% if the Fed is expected to push the FF rate higher at levels currently expected.
PRICES @ 10:00 AM
10 yr note: 3.07% -2 bp
5 yr note: 3.12% -3 bp
2 Yr note: 3.05% +2 bp
30 yr bond: 3.21% unch
Libor Rates: 1 mo 1.624%; 3 mo 2.197%; 6 mo 2.835%; 1 yr 3.533% (6/23/22)
30 yr FNMA 5.0: @9:30 101.67 -12 bp (-13 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @9:30 99.88 -12 bp (-25 bp from 9:30 am yesterday)
30 yr GNMA 4.0: @9:30 99.08 -6 bp (-15 bp from 9:30 am yesterday)
Dollar/Yuan: $6.6910 -$0.0074
Dollar/Yen: 135.10 +0.14 yen
Dollar/Euro: $1. 0537 +$0.0014
Dollar Index: 104.28 -0.15
Gold: $1826.40 -$3.40
Bitcoin: 21,216 +414
Crude Oil: $105.21 +$0.94
DJIA: 31,253 +576
NASDAQ: 11,528 +296
S&P 500: 3879 +83
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 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.
Yesterday the bellwether 10 yr. note declined 12 bps to 3.16%, FNMA 5.0 30 yr. coupon price increased 36 bps. In early trading this morning (8 am ET) the 10 at 3.10% -6 bp and MBS prices up 12 bps.
At 8:30 am weekly jobless claims were expected at 225K, as reported 229K.
Yesterday Jerome Powell testified to the Senate Banking Committee, this morning he will do the same at the House Financial Services Committee. Powell told senators that the Fed will continue to increase rates and those increases may push the economy into recession as the Fed is serious about breaking inflation. Steep rate increases could trigger a US recession, and he said the task of engineering a soft economic landing is “very challenging” in testimony. When pressed, Powell said the FOMC may consider another 75 bp increase in the FF rate at the July 27th meeting. In his testimony at the House this morning will Powell soften his comments about a possible recession?
At 9:30 am the DJIA opened +102, NASDAQ +94, S&P +22. 10 yr. note at 9:30 am 3.09% -8 bps. FNMA 5.0 30 yr. coupon at 9:30 am +33 bps and +41 bps from 9:30 am yesterday; the 4.5 coupon +39 bps and +44 bps from 9:30 am yesterday.
Nothing on the schedule today, Powell’s testimony about to begin.
10 yr note: 3.05% -12 bp
5 yr note: 3.06% -17 bp
2 Yr note: 2.90% -15 bp
30 yr bond: 3.18% -7 bp
Libor Rates: 1 mo 1.633%; 3 mo 2.185%; 6 mo 2.827%; 1 yr 3.580% (6/22/22)
30 yr FNMA 5.0: @9:30 101.80 +33 bp (+41 bps from 9:30 am yesterday)
30 yr FNMA 4.5: @9:30 100.13 +39 bp (+44 bps from 9:30 am yesterday)
30 yr GNMA 4.0: @9:30 99.23 +39 bp (+43 bps from 9:30 am yesterday)
Dollar/Yuan: $6.7031 +$0.0017
Dollar/Yen: 134.37 -1.87 yen
Dollar/Euro: $1.0531 -$0.0038
Dollar Index: 104.37 +0.17
Gold: $1843.40 +$5.00
Bitcoin: 20,413 +513
Crude Oil: $106.30 +$0.11
DJIA: 30,668 +184
NASDAQ: 11,128 +75
S&P 500: 3785 +25
Yesterday the stock indexes rallied after slipping last Friday. The DJIA +641, NASDAQ +271, S&P +90 yesterday; this morning in pre-open trading the indexes pointing to a decline. Yesterday with equity markets improved the interest rates increased, now this morning stocks are retreating as the debate over a recession continues. The 10 yr. note yield increased 6 bps yesterday to 3.28% but MBS prices held and ended the session generally unchanged after being down 22 bps at 9:30 am ET yesterday. This morning the 10 yr. note at 3.19% -11 bps and MBS prices up 48 bps at 9 am.
Treasury futures began declining shortly after yesterday's cash close, continuing the decline into the night. The market found some support at the start of the European session, but it reached fresh lows in recent trade, declining alongside other sovereign debt as concerns about growth return to the forefront.
At 9:30 am this morning Fed chair Jerome Powell will begin his required semi-annual testimony on the economy and inflation at the Senate Banking Committee. There are no scheduled economic releases today. Optimism is evaporating that policy makers can achieve a soft landing as they navigate a course of aggressive monetary tightening to tame inflation. “Markets are flip-flopping between recession fears and inflation fears,” Paul Donovan, chief economist at UBS Global Wealth Management, said in a note. “Today it is recession fears.” Deutsche Bank AG’s Chief Executive Officer Christian Sewing joined a growing chorus of executives and policy makers who warn that the global economy may be headed for a recession as central banks step up efforts to curb inflation. Fed Chair Jerome Powell is expected to reiterate his resolve when he speaks. Tomorrow Powell goes the House Financial Services Committee. Concerns about a recession ebb and flow, today with stocks opening lower the commodity markets are under pressure, crude oil dropping significantly (-$7.00 at 9 am).
At 9:30 am the DJIA opened -340, NASDAQ -120, S&P -43. 10 yr. note at 9:30 am 3.16% -12 bps. FNMA 4.5 30 yr. coupon at 9:30 am +41 bps and +60 bps from 9:30 am yesterday; the 5.0 30 yr. coupon +58 bps and +42 bps from 9:30 am yesterday.
Biden plans to call on Congress to enact a gasoline tax holiday to cool soaring pump prices and alleviate the pressure on consumers.
Now Bitcoin is a leading indicator for stocks? Mark Mobius who co-founded Mobius Capital Partners after spending more than three decades at Franklin Templeton Investments; “Cryptocurrencies are a measure of investor sentiment,” he said in an interview Wednesday. “Bitcoin goes down, the next day the Dow Jones goes down. That’s the pattern you get. That shows that Bitcoin is a leading indicator.”
The 10 yr. note at key near term technical levels, the 9 day RSI at neutral and the yield on the 10 at the level that was a breakout last week.
10 yr note: 3.13% -15 bp
5 yr note: 3.20% -17 bp
2 Yr note: 3.06% -16 bp
30 yr bond: 3.23% -11 bp
Libor Rates: 1 mo 1.642%; 3 mo 2.154%; 6 mo 2.842%; 1 yr 3.625% (6/21/22)
30 yr FNMA 5.0: 101.39 +28 bp (+58 bp from 9:30 am yesterday)
30 yr FNMA 4.5: 99.69 +42 bp (+60 bp from 9:30 am yesterday)
30 yr GNMA 4.0: 98.80 +47 bp (+60 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7034 +$0.0139
Dollar/Yen: 135.84 -0.78 yen
Dollar/Euro: $1.0563 +$0.0030
Dollar Index: 104.16 -0.27
Gold: $1846.20 +$7.40
Bitcoin: 20,458 -378
Crude Oil: $102.94 -$6.58
DJIA: 30,324 -206
NASDAQ: 11,055 -14
S&P 500: 3746 -18
Fear not. This is not 2008 revisited
Those of us who were around for the Great Recession of 2008 may be suffering a bit of PTSD at this point, thinking the economy might begin to look, feel, and hit us like the last downturn. But as CNBC’s Diana Olick tells us, the truth will set you free. Because whatever happens next can’t be compared to those times.
America's housing market is in far better health today, thanks in part to lending regulations put into place those 14 years ago that resulted from that meltdown — rules that put today's borrowers on far firmer footing. “For the 53.5 million first lien home mortgages in America today, the average borrower FICO credit score is a record high 751,” says Olick. “It was 699 in 2010, two years after the financial sector's meltdown. Lenders have been much more strict about lending, much of that reflected in credit quality.”
Unlike 2007-2008, home prices have soared so that even if they soften a bit, today’s homeowners possess record amounts of home equity. “So-called tappable equity, which is the amount of cash a borrower can take out of their home while still leaving 20% equity on paper, hit a record high of $11 trillion collectively this year, according to Black Knight, a mortgage technology and data provider. That's a 34% increase from a year ago,” says Olick. All that time, homeowner consumer debt measured against a home’s value has fallen dramatically.
“Total mortgage debt in the United States is now less than 43% of current home values, the lowest on record,” says Olick. “Negative equity, which is when a borrower owes more on the loan than the home is worth, is virtually nonexistent. Compare that to the more than 1 in 4 borrowers who were under water in 2011. Just 2.5% of borrowers have less than 10% equity in their homes. All of this provides a huge cushion should home prices actually fall.”
The number of adjustable rate mortgages are no longer scary as well. “There are currently 2.5 million adjustable-rate mortgages, or ARMs, outstanding today, or about 8% of active mortgages. That is the lowest volume on record. ARMs can be fixed, usually for terms of five, seven or 10 years,” says Olick. Compare that to 2007, just before the housing market crash, when there were 13.1 million ARMs, representing 36% of all mortgages. “Back then, the underwriting on those types of loans was sketchy, to say the least, but new regulations following the housing crash changed the rules.” She adds that ARMs today are not only underwritten to their fully indexed interest rate, but more than 80% of today's ARM originations also operate under a fixed rate for the first seven to 10 years.
For the 1.4 million ARMs currently facing higher rate resets, given higher rates, those borrowers will have to make higher monthly payments. That is unquestionably a risk. But, in 2007, about 10 million ARMs were facing higher resets. Not the same ball game. Mortgage delinquencies are now at a record low, with just under 3% of mortgages past due, according to Olick. “Even with the sharp jump in delinquencies during the first year of the pandemic, there are fewer past-due mortgages than there were before the pandemic. Pandemic-related mortgage forbearance programs helped millions of borrowers recover, but there are still 645,000 borrowers in those programs.”
The mortgage market is on very historically strong footing, according to Andy Walden, vice president of enterprise research at Black Knight. "Even the millions of homeowners who availed themselves of forbearance during the pandemic have by and large been performing well since leaving their plans.” The sticky part are the odd 300,000 borrowers who have exhausted pandemic-related forbearance programs and are still delinquent. "We'll want to keep an eye on this population moving forward," Walden said.
Tight standards still rule in the mortgage industry. Mortgage credit availability is well below where it was just before the pandemic, according to the Mortgage Bankers Association. But the number of applications have dropped by about 50%, and that could mean they become more aggressive in lending to less credit-worthy borrowers. Stay tuned. The biggest problem in the housing market by far right now is home affordability, which is at a record low in at least 44 major markets, according to Black Knight. “While inventory is starting to rise, it is still about half of pre-pandemic levels,” says Olick.
"Rising inventory will eventually cool home price growth, but the double-digit pace has shown remarkable sticking power so far," said Danielle Hale, chief economist at Realtor.com. "As higher housing costs begin to max out some buyers' budgets, those who remain in the market can look forward to relatively less competitive conditions later in the year.”
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are moving sideways today. The MBS market worsened by -71 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas that have the greatest potential to impact rates this week. 1) The Fed, 2) Foreign News and 3) Inflation
1) The Fed: We have a light week for economic data but a full week for Fed Speak. Fed Chair Powell will give his Congressional testimony on Wednesday and then he will do the "dog and pony show" for the Senate on Thursday. We also hear from several key members this week. The bond market will be focusing on any shift in positions on inflation, rates, and bond purchases.
06/22 Powell, Barkin, Evans, Harker
06/23 Powell, Fed Balance Sheet
2) Foreign News: We get the Minutes from all of the major Central Banks' actions of the past week, the ECB will hold a policy meeting, We also get a huge amount of manufacturing, PPI/CPI, Retail Sales, etc. from European Countries and Great Britain.
3) Inflation: Friday's UofM Consumer Sentiment Index will get a lot of attention, while it is expected to be very low/weak the markets are really focused on the forward looking consumer inflation expectations.
Treasury Sales: We have a very important 20 year Treasury Bond Auction on Wednesday.
This Week's Potential Volatility: High
This morning markets are mostly treading water. Volatility has started at moderate levels but inflation news later this week will likely make it spike.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
In overnight trading the DJIA at one point was up 700 points, the indexes backed off leading into the US session, but still held nice gains. The 10 yr. note at 7:30 am ET 3.30% +6 bps; MBSs started down 16 bps. This week is soft on data but there is a lot to consider; on Wednesday and Thursday Jerome Powell will testify at the senate and House the semi-annual testimony on the economy and inflation.
Recession outlooks are increasing on Wall Street and among key analysts. One of the key blames for the stock market slump is the Fed’s pledge to increase interest rates until the inflation rate drops back to 2.0% (a target that seems hard to achieve with inflation at 8.6%). In an article this morning in the Wall Street Journal a Goldman Sachs analyst said data going back to 1950 showed that stock market selling doesn’t turn around until the Fed starts easing credit. The S&P has declined 23% so far this year, the worst start since 1932. There have been 17 occasions the Fed has been blamed for the decline in the S&P, on 11 of those sell-offs the market didn’t bottom until the Fed began easing. If that holds true, we are in for a very hard landing. At the end of the day there is a lot of uncertainty, but that comparison is difficult to believe now, the Fed won’t stop increasing rates this year and possibly early next year.
A battle has broken out in bond markets, pitting investors’ fears of inflation against their concerns about slowing growth. In just one 15-hour stretch on Thursday, the yield on the benchmark 10-year U.S. Treasury note started at around 3.2%, climbed to roughly 3.5% and then fell to 3.18%, charting a gain and a loss that in a different time could each have taken weeks. That’s what we call volatility.
At 9:30 am the DJIA opened +433, NASDAQ +178, S&P +59. The 10 yr. note 3.30% +6 bps. FNMA 5.0 30 yr. coupon at 9:30 am -30 bps from Friday and 27 bps lower than 9:30 am Friday.
10 am existing home sales expected at 5.41 mil, as reported sales declined 3.4% m/m and -8.6% yr./yr.
Tomorrow and Thursday Jerome Powell is at Congress testifying.
10 yr note: 3.27% +4 bp
5 yr note: 3.36% +2 bp
2 Yr note: 3.20% +1 bp
30 yr bond: 3.34% +6 bp
Libor Rates: 1 mo 1.626%; 3 mo 2.123%; 6 mo 2.813%; 1 yr 3.621% (6/20/22)
30 yr FNMA 5.0: 100.81 -31 bp (-27 bp from 9:30 am Friday)
30 yr FNMA 4.5: 99.09 -22 bp (-32 bp from 9:03 am Friday)
30 yr GNMA 4.0: 98.20 -44 bp (-50 bp from 9:30 am Friday)
Dollar/Yuan: $6.6933 +$0.0008
Dollar/Yen: 136.16 +1.07 yen (the yen in free-fall)
Dollar/Euro: $1.0555 +$0.0055
Dollar Index: 104.27 -0.43
Gold: $1835.70 -$4.90
Bitcoin: 21,474 +1030
Crude Oil: $111.87 +$2.31
DJIA: 30,406 +518
NASDAQ: 11,130 +332
S&P 500: 3764 +90
By the end of the day yesterday the 10 yr. note was down 8 bps and MBS prices down 2 bps; it was another volatile session, MBSs at 9:30 am ET yesterday down 102 bps and the 10 at 3.44%. This morning the 10 started at 3.20% unchanged and MBSs -2 bps on the 5.0 FNMA coupon.
Stocks got hammered yesterday (DJIA -741, NASDAQ -453, S&P -123), this morning in early futures trading the indexes a little better.
The Conference Board has a new survey. More than 60% of CEOs expect a recession in their geographic region in the next 12 to 18 months, according to the survey of 750 CEOs and other C-suite executives released today by the Conference Board, a business research firm. An additional 15% think the region of the world where their company operates is already in a recession. The survey, which is based on data collected in May, was conducted before the Federal Reserve on Wednesday approved its largest interest-rate increase since 1994 and Fed officials said it was becoming more difficult to tame inflation while avoiding a recession. The fallout from Russia’s invasion of Ukraine, supply-chain challenges and Covid-19 lockdowns in China, not to mention rising interest rates, are all “creating some uncertainty in terms of the outlook,” said Paul Knopp, chair and CEO of accounting and advisory firm KPMG U.S.
Jerome Powell in a speech this morning, reiterating the central bank’s commitment to bringing down inflation, saying Friday that it’s essential for the global financial system. “The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said in introductory remarks for a Fed-sponsored conference on the global role of the U.S. currency. He also noted coming changes in the global financial system, including the use of digital currencies and payments systems like FedNow, a service expected to come online in 2023.
Fed officials target 2% inflation as healthy for a growing economy and have said they will continue raising rates until prices return to that range. May CPI up 8.6% yr./yr. It will drive interest rates much higher to achieve that target unless the economy drops into a lasting recession that so far isn’t what the consensus is now.
The most recent Atlanta Fed GDPNow released yesterday is still reading a flat Q2 GDP that flies in the face of the consensus.
At 9:15 am May industrial production was expected +0.4% from +1.4% in April, production increased 0.2%. May factory use was expected at 79.2% from 78.9% in April, it increased 79.0%; manufacturing declined 0.1% against estimates of +0.4%.
At 9:30 am the DJIA opened -77, NASDAQ +52, S&P +7. 10 yr. note at 9:30 am 3.22% +2 bps. FNMA 5.0 30 yr. coupon -12 bps and +27 bps from 9:30 am yesterday.
10 yr note: 3.25% +5 bp
5 yr note: 3.36% +6 bp
2 Yr note: 3.16% +6 bp
30 yr bond: 3.30% +5 bp
Libor Rates: 1 mo 1.595%; 3 mo 2.063%; 6 mo 2.747%; 1 yr 3.674% (6/16/22)
30 yr FNMA 5.0: @9:30 101.08 -12 bp (+27 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @9:30 99.41 -3 bp (+ 28 bp from 9:30 am yesterday)
30 yr GNMA 4.0 : @9:30 98.70 -12 bp ( +73 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7070 +$0.0040
Dollar/Yen: 134.83 +2.67 yen (the yen collapsing recently)
Dollar/Euro: $1.0480 -$0.0069
Dollar Index: 104.73 +1.10
Gold: $1845.80 -$3.90
Bitcoin: 20,823 +140
Crude Oil: $114.51 -$3.08
DJIA: 30,004 +77
NASDAQ: 10,781 +135
S&P 500: 3688 +22
FOMC meetings always generate huge levels of volatility, yesterday it didn’t disappoint. MBS prices exploded and the 10 yr. note declined. Late yesterday MBSs in thin market trading increased 120 bps (at 4 pm ET the 4.5 coupon +106 bp; the 5 coupon at 4 pm +48, ended +105 bp). The 10 yr. note at 4 pm yesterday -13 bps, at the close 3.29% -19 bp. The stock indexes rallied. Traders dumping those bearish trades. This morning it all flipped back; the 10 yr. at 8 am 3.43% +14 bp, early trading in MBSs down 72 bps. Early trading in the stock market, DJIA -475 after increasing 304 yesterday. Just about every technical indicator we use were in over sold conditions in the interest rate markets, markets correcting the extended situation now. Expect consolidation now for a week or so.
At 8:30 am weekly jobless claims, expected +220K increased 229K, the week before was revised from 229K to 232K with the revision down 3K from the week before. Claims are not as interesting now as job growth continues strong. The main event today is the May housing starts and permits, and the were weaker than forecasts. Starts expected at 1.695 mil dropped to 1.549 mil (July starts revised from 1.724 mil to 1.810 mil). Permits also less than forecasts of 1.780 mil dropped to 1.695 mil. Finally, at 8:30 am, the June Philadelphia Fed manufacturing index was expected at 5.5, it declined to -3.3.
Another central bank increased rates today, the Bank of England implemented a fifth consecutive hike to interest rates as it looks to rein in soaring inflation. It increased rates by 25 bps to 1.25% The vote was mixed, six voted yes three voted no, wanting a 50 bp increase. The statement saying that it will “take the actions necessary to return inflation to the 2% target sustainably in the medium term,” with the scale, pace and timing of any further hikes depending on the economic outlook and inflationary pressures. Sounds familiar, doesn’t it? Taiwan and Brazil also increased rates.
At 9:30 am the DJIA opened -610, NASDAQ -295, S&P -86. The 10 yr. note at 3.44% +15 bps, at the same level on Tuesday. FNMA 4.5 30 yr. coupon -102 bp and -35 bp from 9:30 am yesterday.
As we noted yesterday, the next few sessions are going to be volatile with prices swinging in wide ranges, yesterday the 10 dropped 18 bps, this morning up 13 bps and back to the highs of this increasing rate pattern. Already this morning MBS prices moving in wide ranges, at 9:30 am the 4.5 coupon -102 bps, at 9:45 am -87 bps.
10 yr note: 3.43% +15 bp
5 yr note: 3.50% +13 bp
2 Yr note: 3.28% +6 bp
30 yr bond: 3.46% +12 bp
Libor Rates: 1 mo 1.523%; 3 mo 2.029%; 6 mo 2.748%; 1 yr 3.612% (6/15/22)
30 yr FNMA 5.0: @ 9:30 100.13 -109 bp (-54 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @ 9:30 98.45 -102 bp (-45 bp from 9:30 am yesterday)
30 yr GNMA 4.0: @9:30 97.97 -83 bp (-41 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7121 -$0.0014
Dollar/Yen: 132.71 -1.12 yen
Dollar/Euro: $1.0460 +$0.0015
Dollar Index: 104.58 -0.58
Gold: $18632.70 +$13.10
Bitcoin: 20,967 -718
Crude Oil: $113.10 -$2.21
DJIA: 30,013 -665
NASDAQ: 10,794 -349
S&P 500: 3686 -104
After increasing 33 bps the last two day, this morning the 10 down 11 bps to 3.37%. It is what we expected but after the FOMC meeting this afternoon. “In my opinion, too much momentary fear, the bond and mortgage markets are more than likely to improve tomorrow afternoon”. MBS prices fell 42 bps yesterday, at 9 am ET this morning +63 bps on the 4.5 FNMA 30 yr. coupon, +52 bps on the 5.0 coupon.
At 8:30 am May import prices up 0.6% and yr./yr. +11.7%; export prices increased 2.8% but up 18.9% yr./yr.
May retail sales expected +0.1% declined 0.3%, ex vehicles expected +0.7% increased +0.5%, ex vehicles and gas expected +0.5% increased 0.1%. The decline was the first time in five months, restrained by a plunge in vehicle purchases and other big-ticket items, suggesting moderating demand for goods amid decades-high inflation.
Weekly MBA mortgage applications were better for a change; the composite +6.6%, purchase apps +8.1% from -7.1% the prior week due to the holiday. Re-finance apps increased 3.7% from -5.6%.
Treasuries snapped their worst two-day decline in decades, extending gains after underwhelming manufacturing and retail-sales data from the world’s largest economy. Stagflation is the current sweat in US financial markets. We believe the FOMC will move by 75 bps this afternoon, generally the consensus but talking heads are touting 50, or maybe 100 bps. That won’t happen, markets have already done the heavy lifting and totally discount 75 bps. What is critical is what the policy statement and Jerome Powell have to say about future intentions and all the caveats that are weaved into the statement and Powell’s press conference.
At 9:30 am the DJIA opened +279, NASDAQ +19, S&P +40. 10 yr. at 9:30 am 3.37% -10 bps. FNMA 4.5 30 yr. coupon +55 bps and +22 bps from 9:30 am yesterday; the 5.0 coupon +50 bps and +53 bps from 9:30 am yesterday.
At 10 am June NAHB housing market index dropped again to 67 from 69, the lowest index reading in 2 yrs.
Over the last two weeks 30 yr. mortgage rates have increased 80 bps to 6.28% this morning.
Markets should be rather quiet now until 2 pm this afternoon.
10 yr note: 3.39% -9 bp
5 yr note: 3.48% -11 bp
2 Yr note: 3.30% -11 bp
30 yr bond: 3.39% -5 bp
Libor Rates: 1 mo 1.509%; 3 mo 2.003%; 6 mo 2.668%; 1 yr 3.581% (6/14/22)
30 yr FNMA 5.0: 100.67 +50 bp (+53 bps from 9:30 am yesterday)
30 yr FNMA 4.5: 98.80 +55 bp (+23 bps from 9:30 am yesterday)
30 yr GNMA 4.0: 98.38 +55 bp (+13 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7143 -$0.0267
Dollar/Yen: 134.71 -0.76 yen
Dollar/Euro: $1.0413 -$0.0004
Dollar Index: 105.26 -0.16
Gold: $1828.20 +$14.70
Bitcoin: 21,477 -515
Crude Oil: $118.23 -$0.70
DJIA: 30,734 +369
NASDAQ: 10,991 +163
S&P 500: 3784 +49
Yesterday, the biggest spike in one day going back to 2011. CPI last Friday, much higher than expected sent the 10 yr. rates up 11 bps and MBS prices down 78 bps. This morning the 10 yr. started down 4 bp and MBS prices at 9 am ET +20 bps. By 9:30 am the 10 increased to down 1 bps and MBS prices back to unchanged.
May PPI at 8:30 am; up 0.8% m/m from +0.4% in April, the expectation was +0.8%, yr./yr. expected +11.0% increased 10.8%; excluding food and energy markets expectation m/m +0.6% as reported +0.7% (April revised from +0.4% to +1.1%), yr./yr. expected 8.7% as reported +9.7%. The report stronger than expected but after the bloodletting yesterday the 10 yr. note at 9 am 3.32% -4 bps from the -20 bp increase yesterday. MBS price at 9 am +20 bps on the 5.0 coupon and +19 bps for the 4.5 coupon. Stock indexes at 9 am up from yesterday, the DJIA +120.
The PPI report held no relief from the view that the Fed will increase the FF rate 75 bps tomorrow, the meeting just getting underway. Nothing until 2 pm tomorrow. The headline was as expected but the core, ex food and energy, stronger. April core revised to +1.1% from +0.4%; May yr./yr. +9.7% against forecasts of 8.7% and April core revised from +8.8% to +10.0%. All of the talk in the media and from the White House has been the high prices for gas and food prices, the core today that excludes those elements implies inflation is increasing for everything across the board.
At 9:30 am the DJIA opened +108, NASDAQ +77, S&P +18. 10 yr. note at 9:30 am 3.35% -2 bp. FNMA 4.5 coupon at 9:30 am -12 bps and -42 bps from 9:30 am yesterday. The 5.0 coupon at 9:30 am -25 bps and -66 bps from 9:30 am yesterday. Volatility in the MBS markets continue, by 10 am MBS prices reversed their losses and traded higher, FNMA 4.5 at 9:50 am +14 bps on the day for the 5 coupon, the 4.5 coupon +9 bps on the day.
OPEC saying world oil consumption will expand by 1.8 million barrels a day, down from the 3.4 million a day anticipated this year, the group’s preliminary projections show. OPEC agreeing to speed up the return of production halted during the pandemic, assenting to US entreaties for more oil after months of refusal.
Nothing now until tomorrow at 2 pm when the FOMC policy statement is released, the current consensus expecting a 75 bp increase gives the fed cover to do it. Markets will be focused on what the FOMC thinks about inflation going forward. At 2:30 am tomorrow Jerome Powell’s press conference he’ll be peppered with questions about what he thinks about the July FOMC meeting, 50 bps more?
10 yr note: 3.36% unch
5 yr note: 3.47% -1 bp
2 Yr note: 3.33% -3 bp
30 yr bond: 3.36% unch
Libor Rates: 1 mo 1.324%; 3 mo 1.828%; 6 mo 2.510%; 1 yr 3.370% (6/13/22)
30 yr FNMA 5.0: @9:30 100.14 -25 bp (-66 bp from 9:30 am yesterday; by 10:00 am +14 bp)
30 yr FNMA 4.5: @9:30 98.58 -9 bp (-66 bp from 9:30 am yesterday; by 10:00 am +3 bp)
30 yr GNMA 4.0: @9:30 98.25 -12 bp (-105 bp from 9:30 am yesterday; by 10:00 am -3 bp)
Dollar/Yuan: $6.7366 -$0.0180
Dollar/Yen: 134.33 -0.08 yen
Dollar/Euro: $1.0439 +$0.0033
Dollar Index: 105.06 -0.02 (the dollar is at a 20 yr high)
Gold: $1820.50 -$11.20 (gold won’t increase until the dollar begins to lose strength)
Bitcoin: 22,032 -1219 ( it’s a risk off market now, speculative trades being purged across the board)
Crude Oil: $123.13. +$2.20
DJIA: 30,620 +103
NASDAQ: 10,871 +62
S&P 500: 3767 +18
Build it and they will rent – for awhile
If there aren’t enough single-family houses for sale, where do Americans go these days? They scrounge for rentals. Thankfully, the nation’s big landlords are jumping into the homebuilding business to shore up falling supplies, according to MSNBC’s Diana Olick.
“The push comes as more Americans have the flexibility to work from anywhere and are looking for larger spaces with outdoor areas,” she says, adding that according to the National Association of Home Builders, there were 13,000 new single-family homes started as rentals in the first quarter of this year, up 63% from a year ago. “Homes-built-for-rent still represent just 5% of the home building market, but that’s up from the 2.7% historical average, according to the association,” she says.
Mooresville, North Carolina’s American Homes 4 Rent’s newest development includes more than 220 rental homes with access to amenities including a pool and fitness centers. Landscaping and maintenance are included in the rent. And Olick quotes Jake and Stephanie Murphy, who’ve been able to work remotely since the pandemic, just a few of whom relocated to the community after selling their home in California. They could afford to buy, but opted to rent a four-bedroom home for their family for $2,400 a month. “We’re just not sure if the housing prices will really stay where they are currently. So we didn’t want to buy at the peak and then have them go down in a couple of years,” said Stephanie Murphy, who is 29, who also said they liked the flexibility of renting as they learn about a new area.
The number of rentals is now falling slightly, as some smaller landlords sell their homes at the top of this pricey market. However, American Homes 4 Rent’s David Singelyn expects to keep building homes for rent over the next few years based on the strengthening demand he said he’s seeing. “How many inquiries are we getting? How many showings? How many applications are we getting on every available home? It’s two to three times greater today than it was two years ago before the pandemic,” he says.
Olick includes other companies investing in the build-for-rent market, including Lennar, DR Horton, Taylor Morrison and Toll Brothers. “Invitation Homes, the largest publicly traded landlord, last year went into a joint venture with home builder Pulte Homes to build more rental homes,” she says.
John Burns Real Estate Consulting reports that investment in single-family rentals – both buying older homes and building new ones – has grown dramatically, with the sector seeing investments of about $3 billion in 2020, but surging to $30 billion by 2021. It’s expected to reach $50 billion this year as larger institutional investors, homebuilders, and landlords rush into the market.
American Homes 4 Rent is a mega-landlord that began doing business during the Great Recession, when millions of homes went into foreclosure. “The company snapped up cheap, distressed properties, often on the auction block, and turned them into lucrative rentals,” says Olick, recalling that there were 11.6 million single-family rental households in 2006, at the last housing peak. “That figure rose to 15.5 million in 2014 after the housing market crashed.”
Along with growing demand and tightening supply, rental homes are also getting less affordable. Nationwide, single-family rents are up more than 13% from a year ago, according to CoreLogic, which reports that a shortage of single-family properties available for rent has plagued the market, pushing rents up at record-level rates. Even the number of single-family rental properties listed early this year were well below pre-pandemic levels.
As for the Murphys, they prefer to watch how the market plays out while they enjoy renting. Like others who prefer to watch the trends on home prices as well as interest rates, they feel they have little choice in the matter for a while.
Rates Currently Trending: Higher
Mortgage rates are moving higher today. The MBS market worsened by -127 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) The Fed, 2) Central Banks and 3) Inflation.
1) The Fed: On Wednesday we get the Fed's Interest Rate Decision and Policy statement. The market widely expects a hike of 50BPS with many now hedging for 75BPS after last week's CPI print. But of equal importance is the release of their Economic Projections which is used to create the "dot plot chart". Their forward guidance in those projections will have a dramatic impact on rates.
2) Central Banks: While our FOMC is getting the lions-share of attention, their are other major Central Banks having their own meetings and policy statements this week. Of note is the Bank of England and the Bank of Japan.
3) Inflation: Last week's CPI print showed that inflation is still a very real threat to the consumer and the economy and this week with the front end of that equation with the Producer Price Index.
This morning markets are still under heavy pressure. Volatility is very high.