More strong selling in the bond and mortgage markets this morning. The 10 yr. at 1.45% +6 bp in early trading and MBS prices down 36 bps from yesterday's 27 bp decline. In early pre-open, stock indexes mostly unchanged from yesterday.
Data at 8:30 am ET; weekly jobless claims expected at 855K declined to 730K and down 111K from the week prior. The prior week's figures were revised down. On an unadjusted basis, claims fell by 131,734 to 710,313. Continuing claims -- an approximation of the number of people filing for ongoing state benefits -- declined by 101,000 to 4.42 million in the week ended Feb. 13. The data indicates that pandemic job cuts may be starting to slow. Employment is expected to improve meaningfully as more Americans get vaccinated.
January durable goods orders increased by the most in six months. Durable goods, items meant to last at least three years, increased 3.4% from the prior month after an upwardly revised 1.2% gain in December from 0.2% originally reported (the Jan estimates were +1.1%). Core capital goods orders, a category that excludes aircraft and military hardware and is seen as a barometer of business investment, rose 0.5% after an upwardly revised 1.5% gain. Non-defense capital goods minus aircraft, used to calculate business investment in the government's gross domestic product report, jumped 2.1% in January, the most in three months. Excluding transportation, durable goods orders rose a more moderate 1.4% after a 1.7% December gain.
Preliminary Q4 GDP was as expected, +4.1%, up fractionally from the advance report a month ago at 4.0%.
At 9:30 am ET, the DJIA opened -30, NASDAQ -79, S&P -13. 10 yr. at 9:30 am 1.47% +8 bps. FNMA 2.5 30 yr. coupon -39 bps from yesterday's close and 11 bp from 9:30 yesterday.
At 10:00 am ET, Jan pending home sales expected unchanged from Dec; as released, sales declined 2.8%.
At 1:00 pm ET, Treasury will auction $62B of 7 yr. notes; yesterday yr. 5 yr. auction was sloppy and weak demand.
The past two days Jerome Powell was testifying at Congress, his message both days the same. He stressed the Fed doesn't expect inflation to drive interest rates higher and that whatever it will require, the Fed will do anything to keep the economic growth going and keep inflation from becoming a drag on growth. Looking at the way interest rates are spiking over the last three weeks with no abatement, markets may be taking that with that little bit of salt. Commodity prices and other asset classes are increasing, the present concern in the interest rate markets leans against Powell's comments, but the Fed does want inflation at or above 2.0%, now at about 1.5%. The swiftness of the climb in long-term interest rates suggests rate markets were not thinking about inflation as much as they are now, likely over-reacting. It may be over-reacting, but it is what it is, as they say, and rates are on a terror higher.
MBS prices are dropping hard, and the 30 yr. interest rate is increasing. The economic outlook improving daily and commodity prices increasing are not as sanguine as Jerome Powell, and the Fed are saying. A strong driver for higher rates, the expectation of massive government spending that increases the optimistic economic outlook and higher interest rates than what we and most were expecting. The increase in rates' strength and speed is testimony to the rapid change in the economic outlook. The 10 yr. is increasingly oversold, but it isn't making much difference in a panic-type move.
PRICES @ 10:00 AM ET
10 yr. note: 1.47% +9 bp
5 yr. note: 0.72% +9 bp
2 Yr. note: 0.16% +3 bp
30 yr. bond: 2.30% +6 bp
Libor Rates: 1 mo. 0.114%; 3 mo. 0.189%; 6 mo. 0.199%; 1 yr. 0.278% (2/24/21)
30 yr. FNMA 2.0: @9:30 100.38 -66 bp (-31 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.39 -39 bp (-16 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.30 -42 bp (-15 bp from 9:30 yesterday)
Dollar/Yuan: $6.4533 -$0.0033
Dollar/Yen: 106.06 +0.22 yen
Dollar/Euro: $1.2235 +$0.0065
Dollar Index: 89.70 -0.48
Gold: $1786.20 -$11.70
Bitcoin: $50,871 +$2151
Crude Oil: $63.08 -$0.14
DJIA: 31,920 -41
NASDAQ: 13,532 -66
S&P 500: 3912 -13
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.
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Yesterday afternoon the MBS markets rallied; prices increased from -17 bps at 9:30 am ET yesterday to end the session +14 bps on the day (+31 bps from 9:30 am). The 10 yr. yesterday ended unchanged for the day. We have noted that treasuries are technically oversold, and some consolidation and improvement are likely; fundamentally, the wider perspective is pointing to more rate increases. Jerome Powell supported and re-affirmed that the Fed is not about to change its aggressive support to keep inflation from becoming an economic setback. The stock indexes yesterday recovered from deep sell-offs to end the day with little change. The market has spent the past eight hours in a retreat that has been paced by longer rates once again.
There was no follow-through from yesterday’s price gains in the mortgage market, and the 10 yr. yield couldn’t hold and opened this morning at 1.39% +5 bps. Last night at 7:00 am ET, the 10 yr. yield dropped to 1.33% from 1.36% at 5:00 pm. From there, the yield began to climb to 1.40%, +5 bps, and MBS prices are following higher (see below for current levels, volatility high this morning). Markets have been watching Treasury auction results to gauge whether increased fiscal spending and a supply surge of Treasury bonds would push short-term Treasury prices down and yields up. So far, that hasn’t happened. But bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the economy and cover future borrowing costs.
Inflation concerns in the markets are more entrenched than many thought; based on the way the 10 yr. is unusually dismissing short-term technical indicators, the concerns appear to be stronger than general expectations.
Weekly MBA mortgage applications fell 11.4% from the prior week; purchase apps -12.0%, re-finance apps -11.0%. The decline due to the severe weather across the country last week.
At 9:30 am ET, the DJIA opened -15, NASAQ -68, S&P -8. 10 yr. at 9:30 am 1.43% +7 bps. FNMA 2.5 30 yr. coupon at 9:30 -50 bps from yesterday’s close and -20 bps from 9:30 yesterday.
Powell at the House Financial Services Committee.
At 10:00 am ET, January new home sales were expected at 855K from 842K in December; sales were strong at 923K units, +4.3%. Dec sales were revised higher. From 842K to 885K.
This afternoon Treasury will auction $61B of 5 yr. notes.
10 yr. note: 1.42% +7 bp
5 yr. note: 0.62% +5 bp
2 Yr. note: 0.14% +2 bp
30 yr. bond: 2.28% +90 bp
Libor Rates: 1 mo. 0.117%; 3 mo. 0.187%; 6 mo. 0.203%; yr. 0.284% (2/23/21)
30 yr. FNMA 2.0: @9:30 100.69 -67 bp (-39 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.55 -50 bp (-20 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.45 -36 bp (-5 bp from 9:30 yesterday)
Dollar/Yuan: $6.4585 -$0.0080
Dollar/Yen: 106.02 +0.77 yen
Dollar/Euro: $1.2131 -$0.0020
Dollar Index: 90.31 +0.14
Gold: $1787.40 -$18.40
Bitcoin: $49,172 +$1088
Crude Oil: $62.24 +$0.57
DJIA: 31,515 -25
NASDAQ: 13,339 -126
S&P 500: 3870 -12
The day started with interest markets unchanged from yesterday’s selling. By 9:30 am ET, MBS prices were under another round of heavy selling while the 10 yr. rate is up 1 bp from yesterday to 1.37%.
Today the main event is Jerome Powell’s testimony to the Senate Banking Committee (10:00 am ET) about the economy and what the Fed is thinking. Powell and other Fed officials stance about wanting inflation to increase at or above 2.0%, and when (if) it does the Fed has said over and over it would not be concerned and would not alter the Fed’s present low rates and continuing buying MBSs and treasuries to support low rates and bolster the economy. Now though, markets’ tune about no inflation fears has swung 180 degrees recently once the 10 yr. note exceeded 1.0% and has kept increasing at a pace not expected. What is the Fed’s response? What does Powell believe the Fed should do (if anything)? What does he believe about massive continuing monetary spending plans? Will he support Janet Yellen’s view that increased monetary spending is needed that the increasing debt is worth the cost?
Financial markets are in turmoil with the recent increase in interest rates, mostly because the equity markets are in extreme overbought conditions and interest rates have been flat to lower for years, and it became entrenched in rate thinking psychology that low rates would always be there. Rates will stay low, although likely not at the lows we saw last August or since then. The 10 yr. note yield has been increasing since last August when the yield briefly fell to 0.57%. Until the last few weeks, though, it wasn’t an issue with investors as it currently is. Workers and businesses need to see inflation stay high for a while before they start expecting higher wages and charging higher prices, setting off a self-reinforcing upward spiral. The Fed can quickly curtail inflation by raising short-term rates, adjusting the interest rate it pays on bank reserves, and slow its monthly purchases of treasuries and MBSs. We doubt Powell and the Fed are worried. What we are experiencing in markets now is the realization interest rates have likely seen their lowest levels.
More inflationary news in the housing sector from Dec Case/Shiller and Dec FHFA home price indexes. Case/Shiller 20 city price index expected +1.0% increased to 1.3%, yr./yr. unadjusted expected +9.6% increased 10.1%. The Dec FHFA home price index was thought to be +0.8%, as released it increased 1.1% and yr./yr. +11.4% from 11.0% in Nov. These are dated data but expect to see home prices increasing in Jan and continuing to hold higher levels for the next few months.
Prices are increasing at the producer level as the economic rebound has been much more robust than anyone was believing. Still not seeing it at the consumer level, but it is coming. Manufacturers are being squeezed with higher prices and slow deliveries as consumer spending in the pandemic has been substantially stronger for durable goods. Many consumers are flush with savings courtesy of stimulus payments and about to get another round when the Biden $1.9 trillion package is passed next week. But that isn’t the end; Democrats are currently working on another bill that will fund infrastructure spending that will dwarf the current stimulus amount.
At 9:30 am ET, the DJIA opened -85, NASDAQ -253, S&P -26. The NASDAQ in a major correction, down 341 yesterday. 10 yr. at 9:30 am unchanged at 1.37%. FNMA 2.5 30 yr. coupon at 9:30 -16 bps from yesterday’s close and -39 bps from 9:30 am yesterday; FNMA 2.0 30 yr. -23 bps from yesterday’s close and -37 bps from 9:30 am yesterday.
At 10:00 am ET, Feb consumer confidence index from the Conference Board, expected at 90.0 from Jan revision from 89.3 to 88.9, increased to 91.3.
At 1:00 pm ET, Treasury will auction $60B of 2 yr. notes.
The 10 yr. note is oversold, and we expect improvement or at least no increase until the market consolidates the recent spike, the same in the MBS markets. Too much selling in too short of time.
10 yr. note: 1.38% +2 bp
5 yr. note: 0.58% -1 bp
2 Yr. note: 0.11% unch
30 yr. bond: 2.20% +2 bp
Libor Rates: 1 mo. 0.114%; 3 mo. 0.175%; 6 mo. 0.204%; 1 yr. 0.285% (2/22/21)
30 yr. FNMA 2.0: @9:30 101.08 -17 bp (-37 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.75 -16 bp (-39 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.50 -25 bp (-53 bp from 9:30 yesterday)
Dollar/Yuan: $6.4700 +$0.0052
Dollar/Yen: 105.29 +0.21 yen
Dollar/Euro: $1.2141 -$0.0018
Dollar Index: 90.22 +0.21
Gold: $1799.10 -$9.30
Bitcoin: $46,442 -$8477
Crude Oil: $60.99 -$0.71
DJIA: 31,274 -247
NASDAQ: 13,190 -343
S&P 500: 3834 -42
Building materials see price increases as 2021 gets underway
While prices for resale homes are being driven up due to both lack of inventory as well as demand, prices for new homes will no doubt continue to rise due to prices that must be paid for goods used in residential construction. Excluding energy, goods prices rose 2.1% in January (not seasonally adjusted) and have increased 6.8% over the past 12 months, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics.
According to EyeOnHousing’s David Logan, the index for inputs to residential construction, including food and energy, also increased over the month (+2.5%) as energy prices climbed 5.1%. “Prices paid for softwood lumber (seasonally adjusted) rose 13.9%. Lumber prices have remained extremely volatile since the 88.5% increase between April and September 2020. Since falling 22.9% between September and November, softwood lumber prices have risen 28.7%.”
He also reports that the lumber PPI is now just 0.8% lower than the record high set in September and —barring a record decline in softwood lumber prices over the next two weeks—the index will increase further in February as prices have continued to climb in the weeks after the January survey data were gathered.
There have been nominal price movements and tariffs on Canadian lumber, but cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar, with the USD weakening 12.8% since March and falling 3.6% since lumber prices began rising again in November.
CNBC’s Diana Olick reports that while consumers want more newly built, affordable homes, builders are finding that hard to deliver, especially as prices for framing lumber spike ever higher. “Lumber prices inched above $1,000 per 1,000 board feet before falling back below that milestone. The high of double the price from just three months ago and a record.
Source: NAHB | CNBC | TBWS
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: Higher
Rate markets are trending sideways to slightly higher so far today. Last week the MBS market improved by -54bps. This was enough to move rates higher last week. We saw high rate volatility throughout the week.
This Week's Rate Forecast: Higher
Three Things: These three areas have the greatest ability to impact rate markets this week. 1) Stimulus, 2) Central Bank, and 3) Domestic.
1) Stimulus: The potential sidecar Bill for a massive infrastructure spending spree would be another cool trillion on top of the $1.9T spending bill. This will continue to negatively impact all long-term bonds that are very reactive to growth and inflation.
2) Central Bank: We will hear from Fed Chair Powell on Tuesday and Wednesday as part of his economic testimony in front of (virtually) the Senate Committee on Banking and the House Financial Services Committee. We also get a key interest rate decision from the Reserve Bank of New Zealand and hear from ECB Chair Lagarde.
3) Domestic: Other than Monday, we have a very robust calendar for economic data. The bond market will pay the most attention to the Fed's key measure of inflation, Core PCE, as well as Chicago PMI and Personal Income/Spending. Second-tier reports will be a revision to the last QTR GDP and Consumer Confidence.
Treasury Dump: Here is this week's Treasury note auction schedule.
This Week's Potential Volatility: High
Rate volatility spiked last week as rate markets moved a bit higher. We're looking for the same this week. Many things have the volatility to impact rates this week; the most significant is the economic data denoted above. If the data shows growth and inflation, look for rates to push higher for the week on increased volatility.
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.
Volatility in early trade in the bond and mortgage markets this morning; the 10 yr. at 8:00 am ET 1.39% +5 bps, MBS prices -19 bps. By 9:00 am, the 10 yr. 1.35% +1 bp and MBS prices down just 5 bps.
Interest rates have increased at a pace not many were expecting. The rapidly spreading belief that inflation is coming as asset prices increase and now that Congress can focus on that $1.9 trillion stimulus is back on track is expected to boost more spending and higher prices. Adding gasoline to the fire that the economic outlook is going to grow are comments from Jerome Powell and Janet Yellen last week, both encouraging massive government spending to keep the economy from turning sour. The economy is growing, unemployment steadying, stimulus checks about to flow, wholesale prices increasing, home prices on the increase on lack of supply, and increasing construction costs. These factors are causing most big hedge funds, banks, and big investors to re-arrange their metrics to reflect that interest rates are not going to fall but increase. It isn't any more whether inflation is edging higher, but how high will long-term rates (10 yr. and MBSs) will climb. Mix in the very overbought stock market, and the path for interest rates is higher.
The House plans to vote as soon as Friday on Democrats' stimulus package, setting up a Senate vote as soon as next week. The House Budget Committee is set to vote today and a floor vote on Friday. The real action will be behind closed doors in the Senate, where Democratic leaders are hammering out the changes needed to get all 50 Senate Democrats and independents on board. The main issue is over the $1,400.00 checks that Republicans see as unnecessary and too expensive, coming after last year's $2 trillion and $900 billion virus-relief packages enacted in March and late December, respectively.
At 9:30 am ET, the DJIA opened -179, NASDAQ -167, S&P -28. 10 yr. at 9:30 am 1.55% after climbing to 1.39% earlier this morning. FNMA 2.5 30 yr. coupon price at 9:30 am -19 bps from Friday, and -25 bps from 9:30 am Friday.
At 10:00 am ET, January leading economic indicators, expected +0.3% increased 0.5%.
We noted a few times last week that the US financial markets (stocks and bonds) will see increased volatility over the next week or two, at least. Too much enthusiasm in equity markets and too little concern that interest rates will increase. Markets are now adjusting to new market metrics that will generate volatility. Not to be overlooked, the political situation in Washington with Democrats rapidly terminating most of Pres. Trump's initiatives on global and domestic issues. The 10 yr. so far this morning trading in wide swings, from 1.39% at 8:00 am ET, 1.36% at 9:30 am, and now at 10:00 am 1.33% -1 bp.
10 yr. note: 1.34% unch
5 yr. note: 0.59% +1 bp
2 Yr. note: 0.11% +1 bp
30 yr. bond: 2.15% +1 bp
Libor Rates: 1 mo. 0.115%; 3 mo. 0.175%; 6 mo. 0.195%; 1 yr. 0.286% (2/19/21)
30 yr. FNMA 2.0: @9:30 101.45 -23 bp (-38 bp from 9:30 Friday)
30 yr. FNMA 2.5: @9:30 104.14 -19 bp (-25 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.03 -14 bp (-18 bp from 9:30 Friday)
Dollar/Yuan: $6.4631 -$0.0238
Dollar/Yen: 105.21 -0.21 yen
Dollar/Euro: $1.2145 +$0.0025
Dollar Index: 90.23 -0.14
Gold: $1805.40 +$28.00
Bitcoin: $52,509 -$4823
Crude Oil: $60.68 +$1.44
DJIA: 31,404 -90
NASDAQ: 13,729 -145
S&P 500: 3886 -21
The day began with stock indexes holding small gains and interest rates ticking higher, the 10 yr. at 8:00 am ET +2 bps to 1.31%, MBS price -9 bps.
Janet Yellen on CNBC late yesterday continued to add her support to the big stimulus package, saying she has no worries about the impact of higher debt coming. She pointed to getting the economy rolling as the most urgent issue facing Congress and markets. She's not concerned about the recent uptick in inflation and inflation forecasts. No worries, the Fed will print more money. On inflation, Yellen said that is a risk, but she added that inflation has been very low for many years and that the Federal Reserve has the tools to confront that risk by raising interest rates. She isn't worried about being able to finance more deficit spending, saying investor appetite for Treasury debt is robust. "We are digging out of a deep hole," Ms. Yellen said of the economic slump induced by the Covid-19 pandemic. "We think it's very important to have a big package that addresses the pain this has caused." Republicans and some economists have questioned whether the proposal, which would include $1,400 stimulus checks for many Americans, provide extended unemployment insurance, and deliver aid for state and local governments, would give more support than the economy needs.
More spending is on the way, according to Yellen's comments. The next step after the $1.9 trillion package, which will likely pass next week, is a second economic recovery package that would include spending on longer-term investments, such as infrastructure, renewable energy, education, job training, research, and development. That proposal would also include tax increases on corporations and wealthy Americans that would be phased in overtime, she said.
At 9:30 am ET, the DJIA opened +55, NASDAQ +69, S&P +10. 10 yr. at 9:30 am 1.32% +3 bps. 2.5 30 yr. FNMA coupon at 9:30 -11 bps from yesterday's close and -3 bps from 9:30 am yesterday.
At 9:45 am ET, Feb PMI Flash composite indexes; the composite index expected at 57.9 increased to 58.8; the manufacturing component expected at 59.0 slipped to 58.5; the services index was thought to be 57.7 from 57.5 in Jan increased to 58.9.
At 10:00 am ET, January's existing home sales were expected at 6.600 mil, as reported 6.690 mil.
Seeing more comments that more people are becoming concerned about the strong rise in equity markets recently. After the fastest bear-to-bull market switch last year has prompted market mavens to flag worries about pricey assets, with BofA calling it the "mother-of-all asset bubbles." For instance, the Fed has been purchasing bonds at a record pace, doubling its balance sheet to nearly $8 trillion in less than a year. Goldman Sachs' Chief Executive David Solomon and strategists at some major investment banks have since January been warning about stock market volatility, particularly in the immediate future. As financial assets worth $1.1 billion are gobbled up by global central banks every hour, there is irrational exuberance on Wall Street, according to BofA. The number of outlooks recently have become increasingly nervous, but equity markets keep on going with no other place to go with massive stimulus checks, governments buying debt, and comments like Janet Yellen's yesterday.
Interest rate holding low and expected to stay that way with all central banks and the US Treasury completely behind more monetary and fiscal spending. It is rare to experience the almost over-the-top bullishness for added spending from the Fed and Treasury, not to mention the enthusiasm for spending from Congress. The more conservative voices completely blocked out. If we are going to see any significant improvement in mortgage rates, it will happen on the back of major selling of US and global equities. Otherwise, rates are poised to increase; our next technical support doesn't come into play until the 10 yr. note reaches 1.50%.
PRICES @ 10:00 AM
10 yr. note: 1.32% +3 bp
5 yr. note: 0.57% +2 bp
30 yr. bond: 2.11% +3 bp
Libor Rates: 1 mo. 0.111%; 3 mo. 0.182%; 6 mo. 0.196%; 1 yr. 0.291% (2/18/21)
30 yr. FNMA 2.0: @9:30 101.83 -12 bp (-3 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 104.39 -11 bp (-3 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.22 -9 bp (+5 bp from 9:30 yesterday)
Dollar/Yuan: $6.4868 -$0.0014
Dollar/Yen: 105.50 -0.18 yen
Dollar/Euro: $1.2121 +$0.0026
Dollar Index: 90.33 -0.26
Gold: $1779.30 +$4.30
Bitcoin: $52,905 +$846
Crude Oil: $60.12 -$0.40
DJIA: 31,591 +98
NASDAQ: 13,937 +71
S&P 500: 3927 +13
Rate markets slipped a little yesterday, the 10 yr. at 1.27% -5 bps and FNMA 2.5 30 yr. coupon +18 bps after strong selling on Tuesday on very heavy selling when the Jan PPI far exceeded the forecasts in terms of price gains.
This morning trade before 8:30 am ET data had MBS prices down -14 bps, the 10 yr. 1.30% +3 bps.
Weekly jobless claims were expected at 768K, as reported 861K; The prior week claims were revised higher, from 793K to 848K (-19K revised to +36K). Based on the preceding week’s revision, claims increased 13K. A four-week high, indicating the labor market is suffering fresh setbacks even as the coronavirus pandemic shows signs of ebbing. This morning’s data will likely impact the February employment data on 3/5.
Jan housing starts at 1.580 mil was weaker than 1.655 mil forecasts, but building permits increased more than 1.670 mil to 1.881 mil. Dec starts revised higher, from 1.669 mil to 1.680 mil. Starts fell in January for the first time in five months, increasing home prices biting for many would-be buyers, and supply is thinning. Single-family housing starts, which were at the highest since 2006 by the end of last year, decreased by 12.2% to a 1.16 million pace. Multifamily starts, which tend to be volatile, surged 17.1% to a 418,000 pace, the fastest since July. Tomorrow we get Jan existing home sales.
Jan import and export prices add another inflation worry; add it to Jan PPI showing much higher price increases. Import prices were thought to be +1.0%, increased 1.4%; yr./yr. expected +0.4% increased 0.9%. Export prices were expected +0.8%, as released +0.9%; yr./yr. forecasts +0.4%, as reported +2.3%.
The February Philadelphia Fed business index expected at 20.0 from 26.5 in Jan was better than thought at 23.1.
Walmart this morning forecasting slowing sales for fiscal 2022, following a blockbuster year that saw demand for essentials and other items soar as consumers flocked to the retailer during lockdowns linked to the coronavirus pandemic.
At 9:30 am ET, the DJIA opened -210, NASDAQ -163, S&P -31. 10 yr. at 9:30 am 1.31% +4 bps. FNMA 2.5 30 yr. coupon -11 bps from yesterday’s close and unchanged from 9:30 am yesterday; the 2.0 coupon -16 bps from yesterday and -14 bps from 9:30 yesterday.
No matter how many times the Fed has said it won’t tighten if inflation moves higher and that the Fed wants inflation to move above 2.0%, markets still are not totally buying it. Recent data shows inflation fears are increasing, and as those concerns expand, the desire to hold fixed-rate bonds is lessening. Presently the worry about inflation has soured investors. Back in 2013, the Fed threatened to slow its money printing, sending long-term interest rates higher. A 2013-style “taper tantrum” was named as one of the top market risks in BofA’s February poll of fund managers who fear a pick-up in inflation expectations might soon persuade central banks to start withdrawing or “tapering” stimulus.
The technical support we had was 1.26%, the high for the 10 yr. note 11 months ago; it didn’t even get a look with the 10 yr. running right buy to its high of 1.34% on Tuesday. We continue to warn volatility is on the rise and will remain volatile now for the next couple of weeks. With little justification, our next key level for the 10 yr. is 1.50%, just a psychological level.
10 yr. note: 1.31% +4 bp
5 yr. note: 0.56% +2 bp
30 yr. bond: 2.10% +6 bp
Libor Rates: 1mo 0.111%; 3 mo. 0.181%; 6 mo. 0.198%; 1 yr. 0.296% (2/17/21)
30 yr. FNMA 2.0: @9:30 101.86 -16 bp (-14 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 104.42 -11 bp (+1 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.17 -11 bp (+1 bp from 9:30 yesterday)
Dollar/Yuan: $6.4780 +$0.0195
Dollar/Yen: 105.83 -0.04 yen
Dollar/Euro: $1.2073 +$0.0031
Dollar Index: 90.70 -0.25
Gold: $1773.10 +$0.30
Bitcoin: $52,297 -$37
Crude Oil: $61.15 unch
DJIA: 31,437 -176
NASDAQ: 13,832 -133
S&P 500: 3904 -27
MBS prices continued to decline early this morning, and the 10 yr. at 8:30 am ET 1.31% unchanged from yesterday's major league selling. The MBS markets in a route yesterday after holding steady for two months with only minor increases in rates.
A lot of interesting news this morning; weekly MBA mortgage applications dipped again last week; the composite index -5.1%, purchase apps -6.0% and re-finance apps dropped 5.0%.
At 8:30 am ET, January's PPI data added additional concern about inflation outlooks. PPI expected +0.4% increased 1.3%, yr./yr. expected .9% increased 1.7%. The core PPI, ex-food and energy, expected +0.2% increased 1.2%, yr./yr. thought to be 1.2% increased 2.0%. Substantial misses, and it's unusual that the misses were that wide. Last week's January CPI compared to the PPI today indicates the price increases haven't yet reached consumers. Jan CPI was unchanged in January for a second straight month, underscoring the pandemic's lingering restraint on inflation. Jan CPI +0.3% as expected, but Dec CPI was revised down to 0.2% from 0.4% originally reported, yr./yr. overall CPI +1.4% against 1.5% expected. Excluding food and energy (the core) expected +0.2% was 0.0% and Dec revised to 0.0% from 0.1%; yr./yr. +1.4% with estimates at +1.6%.
At 8:30 am Jan retail sales painted a strong picture about consumer appetites. Sales were expected +1.1%, as reported increased 5.3% (the increase the largest in seven months); excluding vehicles, sales expected +1.0% increased 5.9%. The control group estimates were +0.9%, as released increased 6.1%. Fresh stimulus checks helped spur a rebound in household demand following a weak fourth quarter. When Congress passes the huge stimulus bill, likely in March, more spending is anticipated, and that folks will add additional concern about inflation levels.
At 9:15 am January, industrial production and factory usage. Production stronger than the expected +0.5%, increased 0.9%; manufacturing output was forecast at 0.5% but increased 1.0%. Factory use expected at 74.8% increased to 75.6% while Dec was revised from 74.5% to 74.9%. Another data point that in itself implies growth.
At 9:30 am ET, the DJIA opened -135, NASDAQ -158, S&P -28. The 10 yr. note 1.29% -2 bps. FNMA 2.0 30 yr. FNMA coupon at 9:30 am +6 bps from yesterday's close and -36 from 9:30 yesterday; the 2.5 coupons at 9:30 am +14 bps from yesterday's close and -25 bps from 9:30 yesterday.
At 10:00 am ET, the February NAHB housing market index was expected to be 83 unchanged from Jan; as reported, the index was 84.
At 1:00 pm ET, Treasury will auction $27B of 20 yr. bonds.
At 2:00 pm ET, the minutes from the recent FOMC minutes from Jan 27th.
10 yr. note: 1.29% -2 bp
5 yr. note: 0.56% -1 bp
2 Yr. note: 0.11% -1 bp
30 yr. bond: 2.05% -5 bp
Libor Rates: 1 mo. 0.108%; 3 mo. 0.188%; 6 mo. 0.202%; 1 yr. 0.302% (2/16/21)
30 yr. FNMA 2.0: @9:30 102.00 +14 bp (-25 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 104.41 +6 bp (-36 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.16 +22 bp (-9 bp from 9:30 yesterday)
Dollar/Yuan: $6.4585 +$0.0004 (year of the Ox)
Dollar/Yen: 105.93 -0.12 yen
Dollar/Euro: $1.2041 -$0.0065
Dollar Index: 90.93 +0.42
Gold: $1780.60 -$18.40
Bitcoin: $50,922 +$2279
Crude Oil: $59.66 -$0.39
DJIA: 31,478 -44
NASDAQ: 13,947 -100
S&P 500: 3918 -14
Stocks began today, continuing to make new highs, and the bellwether 10 yr. note opened at 1.26% +5 bps from Friday. Last Friday, we noted the first potential support for the 10 yr. at 1.26%. Will it hold is the question. 1.26% held last March before working down to 0.50%, and here it is again. The momentum has increased since the beginning of February. Stocks are increasing as investors continue to expect strong economic growth this year, with analysts beginning to look for the growth in the US that will exceed that in China. The idea circulating last week that the equity and corporate bond markets were stretched very thin hasn't dented the overwhelming bullishness. Junk corporate bonds are now going for as low as 4.0%.
Last Saturday, Pres. Trump was acquitted in his impeachment trial; it was not a surprise, from the beginning, no one expected he would be convicted. Ironic that yesterday was President's Day to honor all former presidents.
The news today is the weather; record cold and snow spread across the country. In a matter of four days, an intensifying cold blast gripping the central US froze natural gas pipelines, sent electricity prices skyrocketing to record levels and ultimately forced Texas's grid operator to plunge more than 2 million homes into darkness in the first winter weather-related rolling blackouts since 2011. Prices for different types of heating fuels began to surge higher, including oil and natural gas. Demand for propane climbed to a 17-year high. Gas and electricity use similarly rose. Something to consider when the momentum is moving toward ending fossil fuels, closing the Keystone pipeline, and relying on solar and wind. As temperatures continued to fall, gas pipelines began to seize up, wind turbines started to freeze, and oil wells shut in -- just as homes and businesses raised the demand for heating to record levels. The US Energy Department issued an order that allows power plants to keep running despite possibly violating certain environmental limits. President Biden approved Texas's emergency declaration, making more resources available.
Now that the impeachment is over but not forgotten, markets are turning back to the $1.9 trillion stimulus package. Since Janet Yellen and Jerome Powell's comments that massive fiscal spending is needed and that they're not concerned about debt markets, equity markets have one less concern, and the levels of stocks are well within the metrics of analysts and economists.
Another driver today, the explosion of Bitcoin today increasing over $50,000, keeping the increase intact; the coin is up 70% this year (six weeks). More big Wall Street firms are piling in, still unsure how it will work in the economy. The total market value in circulation of $940B.
At 9:30 am ET, the DJIA opened +120, NASDAQ +77, S&P +14. 10 yr. at 9:30 am 1.266% +5.5%. FNMA 2.0 30 yr. coupon at 9:30 am -31 bp from Friday's close, and -50 bps from 9:30 am Friday; the 2.5 FNMA 30 yr. coupon at 9:30 am 12 bps from Friday's close and -31 bp from 9:30 Friday.
By 10:00 am ET, the stock indexes were holding about where they opened, and interest rates were also holding their higher yields. It's unlikely interest rates will increase today from the present levels.
10 yr. note: 1.27% +6 bp
5 yr. note: 0.52% +3 bp
2 Yr. note: 0.13% +2 bp
30 yr. bond: 2.07% +6 bp
Libor Rates: 1 mo. 0.105%; 3 mo. 0.191%; 6 mo. 0.204%; 1 yr. 0.300% (2/15/21)
30 yr. FNMA 2.0: @9:30 102.25 -31 bp (-50 bp from 9:30 Friday)
30 yr. FNMA 2.5: @9:30 104.77 -12 bp (-31 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.25 -6 bp (-23 bp from 9:30 Friday)
Dollar/Yuan: $6.4581 unch
Dollar/Yen: 105.77 +0.40 yen
Dollar/Euro: $1.2104 -$0.0026
Dollar Index: 90.59 +0.12
Gold: $1792.00 -$31.20
Bitcoin: $49,393 +$1210
Crude Oil: $60.05 +$0.58
DJIA: 31,552 +94
NASDAQ: 14,144 +49
S&P 500: 3946 +11
The 10 yr. opened at 1.18% +1 bp from yesterday; stock indexes in early trading slightly weaker. MBS markets remain roiled as they have all week, FNMA 2.5 coupon -5 bps from yesterday.
Monday is President's Day, and the bond and mortgage markets will be closed.
Increasing thoughts are circulating that the stock market's present level is getting long in the tooth and subject to pull back. Jim Cramer on Wednesday added his opinion: "You wouldn't know it from the sedate action in the averages," but Wall Street is on "a highway to the danger zone," CNBC's Jim Cramer said. "In a frothy market, stocks will have enormous rallies that are totally disconnected from the underlying fundamentals," the "Mad Money" host said. "I am not saying sell everything. I am simply begging you to exercise some discipline and sell something because nobody ever got hurt taking a profit,". He isn't alone, the outlook is slowly changing, and fears of selling are increasing with hedge funds like Black Rock and others are sounding caution.
Inflation is back on the front burner. The Fed is elated and quietly cheering that inflation is now likely to push above 2.0% that has worried the central bank for five years. Larry Summers, Pres. Obama's chief economic advisor worrying that deficit spending is becoming hard to ignore; the $1.9 trillion fiscal stimulus and CBO forecasts of the government debt will exceed $37 trillion in eight years. The projections are widely questioned as too low. Jerome Powell and Janet Yellen stand pat that the debt and increase in inflation are not worrisome. The momentary point is that new concerns are being questioned; inflation, and massive debt growth are coming into focus.
The CDC plans to issue new guidelines today on how to reopen U.S. schools as safely as possible. The pressure to reopen or expand in-person learning has been building for months as students and parents tire of remote classes.
At 9:30 am ET, the DJIA opened -13, NASDAQ -57, S&P -7. 10 yr. 1.19%2 bps. FNMA 2.0 30 yr. -11 bps from yesterday's close and -16 bps from 9:30 am yesterday; the 2.5 coupon -6 bps from yesterday's close and -6 bp from 9:30 am yesterday.
At 10:00 am ET, the U. of Michigan consumer sentiment index expected at 80.9 from 79.0 in January; as released, the index fell to 76.2.
The 10 yr. at its highest level in a month at 1.20%, we expect 1.26% before there is any technical support. Mortgage rates increasing, the 2.0 coupon the last month -85 bps, the 2.5 coupon -28 bps.
10 yr. note: 1.20% +3 bp
5 yr. note: 0.48% +2 bp
2 Yr. note: 0.11% unch
30 yr. bond: 1.99% +4 bp
Libor Rates: 1 mo 0.112%; 3 mo 0.197%; 6 mo 0.208%; 1 yr. 0.303% (2/11/21)
30 yr. FNMA 2.0: @9:30 102.75 -11 bp (-16 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 105.08 -6 bp (-6 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.53 -8 bp (-7 bp from 9:30 yesterday)
Dollar/Yuan: $6.4582 unch
Dollar/Yen: 105.08 +0.33 yen
Dollar/Euro: $1.2096 -$0.0037
Dollar Index: 90.68 +0.26
Gold: $1815.60 -$11.20
Bitcoin: $46,551 -$392
Crude Oil: $58.34 +$0.10
DJIA: 31,387 -43
NASDAQ: 14,012 -13
S&P 500: 3,915 -1
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.
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