MBA reported mortgage applications last week increased 4.2%, purchase apps +2.0%, while refinances increased 6.0%, the weekly improvement counters three prior weeks of declines. The headline, lower mortgage rates. Mortgage rates have declined but so minor that we doubt the slight decline had that kind of impact; nevertheless, better is good.
At 8:30 am ET, May housing starts and permits. Starts were expected at 1.630 mil, as reported 1.572 mil, and April starts were revised lower, from 1.569 mil to 1.517 mil. Permits expected at 1.738 mil were 1.681 mil and like starts April revised from 1.760 mil to 1.733 mil.
Also, at 8:30 am ET, May import and export prices. Prices for US imports increased 1.1 percent in May, after a 0.8-percent advance the previous month, the US Bureau of Labor Statistics reported today. Higher prices for fuel and nonfuel imports contributed to both the May and April increases. US export prices increased 2.2 percent in May, following a 1.1 percent advance in April.
Between now and 2:00 pm ET, there is nothing more important than the FOMC meeting and its policy statement. What will Jerome Powell and the members have to say about tapering of Fed QEs? For the last two weeks, there has been an increase of conversation floating around, some of it led by Fed members, that it is time for the Fed to prepare markets for the unwinding of buying $120B of treasuries and MBSs each month. The economy is back on track, and economists worry over the Fed staying too long and, in turn, set an inflation spiral. With US inflation rising faster than expected and the economy forecast to grow at its quickest pace in decades, policymakers have begun questioning whether the Fed should continue to keep its benchmark short-term interest rate near zero and leave unchanged a massive bond-buying program in place to stem the economic fallout from the pandemic. All FOMC meetings are critical to markets, this one even more important with markets divided about inflation outlooks and split over what is running through the Fed’s collective brain.
At 9:30 am ET, The DJIA opened +30, NASDAQ +16, S&P +4. 10 yr 1.49% -1 bp. FNMA 2.5 30 yr coupon at 9:30 am -3 bps from yesterday close and -1 bp from 9:30 yesterday.
Biden and Putin meet in Geneva. Both sides have played down the prospects of a thaw in relations, although US officials have suggested some headway could be made on sticking points such as nuclear-arms control. In a sign of the tensions between the two countries, Russian and US reporters clashed outside the villa. Russian media and security officials pushed US reporters and jostled for position. The scene devolved into a shouting match as the journalists fought to enter the meeting. Putin expressed his interest in pursuing a dialogue with Mr. Biden, describing the American president as a more predictable leader than his predecessor, but has made clear that he won’t be cowed. Both sides have acknowledged that their relationship has reached a post-Cold War low in recent years, with Moscow recently including the US on its list of unfriendly nations. One key discussion point about Russia’s involvement in the recent ransomware attacks on US businesses, Putin denies any involvement.
Interest rates will stay generally unchanged until this afternoon when the policy statement is released, and Powell’s press conference begins.
PRICES @ 10:00 AM ET
10 yr note: 1.49% -1 bp
5 yr note: 0.78% unch
2 Yr note: 0.16% unch
30 yr bond: 2.18% -1 bp
Libor Rates: 1 mo 0.081%; 3 mo 0.124%; 6 mo 0.152%; 1 yr 0.233% (6/15/21)
30 yr FNMA 2.0: @9:30 100.89 -3 bp (+3 bp frm 9:30 yesterday)
30 yr FNMA 2.5: @9:30 103.33 -3 bp (-1 bp frm 9:30 yesterday)
30 yr GNMA 2.5: @9:30 103.00 -2 bp (+5 bp frm 9:30 yesterday)
Dollar/Yuan: $6.3986 -$0.0075
Dollar/Yen: 109.91 -0.16 yen
Dollar/Euro: $1.2119 -$0.0009
Dollar Index: 90.57 +0.03
Gold: $1858.80 +$2.40
Bitcoin: 39,133 -927
Crude Oil: $72.27 +$0.15
DJIA: 34,256 -41
NASDAQ: 14,106 +33
S&P 500: 4245 -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.
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.
Economic data at 8:30 am ET:
May PPI, expected +0.5% increased 0.8%, yr./yr. expectations +6.5% increased 6.6%; removing food and energy expected +0.7% increased 0.7%, yr./yr. thought to be +4.8% reported at 4.8%; excluding food, energy and trade services forecasts were +0.5%, as reported +0.7%, yr./yr. at +5.3% from +4.6% in April. More inflation that thought.
May retail sales were thought to be down 0.5% but reported -1.3%, a lot of the decline attributed to weak auto sales. Take auto sales away; the expectations were +0.5% but declined 0.7%. On the positive side, April sales were initially reported 0.0% but now revised to +0.9%, ex-autos revised from -0.8% revised to 0.0%. While consumer spending is expected to continue strengthening, the pace should moderate as enhanced unemployment benefits expire and stimulus checks are spent.
The increase in PPI adds more credence that the Fed may be falling behind in its inflation concerns. Before the 8:30 am ET releases, the 10 yr. traded at 1.49%. After the two reports, 1.50%, unchanged from yesterday. PPI continues to increase with supply chain issues; the average rise in PPI between 2017 and 2019 was just 0.2%, according to the Labor Dept. data.
At 9:15 am ET, May industrial production and capacity utilization; production thought to be +0.6% increased 0.8%, manufacturing output expected +0.4% increased 0.9%. Capacity utilization at 75.2%, up from 74.6% in April, indicates that the supply chain issues may be improving.
At 9:30 am ET, the DJIA opened +23, NASDAQ -12, S&P +1 (yesterday, the NASDAQ and S&P made another new high). The 10 yr. at 9:30 am, 1.51% +1 bp. FNMA 2.5 30 yr. coupon at 9:30 am, +3 bps from yesterday, and 11 bps lower than at 9:30 am yesterday.
At 10:00 am ET, the June NAHB housing market index was expected at 83, unchanged from May; the index fell to 81. April business inventories were expected -0.1%, as released -0.2%.
We all know that the price of lumber has added about $30K to a mid-priced home; good news is coming. Futures for July delivery ended Monday at $996.20 per thousand board feet, down 42% from the record of $1,711.20 reached in early May. Futures have declined 14 of the past 15 trading days, the last two by the most allowed by exchange rules (futures trading have daily limits, when reached, in this case no more selling…limit down).
The FOMC meeting begins today and concludes tomorrow at 2:00 pm ET with the policy statement. It's unlikely that there'll be any major changes in the rate markets ahead of the statement and Powell's press conference at 2:30 pm. The Fed is facing a dilemma. Increasingly we hear more from a wide range of comments that the Fed may be behind what is happening with inflation. Calls for the Fed to begin tapering of its $120B a month purchases of treasuries (usually at the short end of the curve) and MBSs. Fed buys $40B of MBSs a month; there are increasing calls that the Fed should stop buying mortgages completely. The norm ahead of the FOMC expects markets to drift sideways with no significant change until tomorrow afternoon. Federal Reserve officials could signal this week that they anticipate raising interest rates sooner than previously expected, following a spate of high inflation readings.
10 yr. note: 1.50% unch
5 yr. note: 0.78% unch
2 Yr. note: 0.16% unch
30 yr. bond: 2.20% +1 bp
Libor Rates: 1 mo. 0.074%; 3 mo. 0.118%; 6 mo. 0.150%; 1 yr. 0.237% (6/14/21)
30 yr. FNMA 2.0: @9:30 100.86 -3 bp (-23 bp from 9:30 Yesterday)
30 yr. FNMA 2.5: @9:30 103.34 +3 bp (-11 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 102.95 +2 bp (-16 bp from 9:30 yesterday)
Dollar/Yuan: $ 6.4041 +$0.0054
Dollar/Yen: 110.13 +0.05 yen
Dollar/Euro: $1.2122 +$0.0002
Dollar Index: 90.57 +0.05
Gold: $1867.40 +$1.50
Crude Oil: $71.87 +$0.99
DJIA: 34,283 -110
NASDAQ: 14,134 -40
S&P 500: 4247 -8
Willing buyers and confident sellers continue to change real estate as we know it
There is the price you’d think it would be, the price the sellers are asking for it, and the price it ends up at. When buying a house these days, those are three very different things. Realtor Magazine says that the low supply/quick sale/high selling price phenomenon is only getting more intense these days. “Eighty two percent of homeowners who sold in the last six months accepted offers at list price or above, according to a new survey of about 1,600 homeowners conducted by Homes.com,” they reported.
Sales are lightning fast as well, with 25% of sellers saying they had five or fewer showings before finding a buyer, 26% had between 6 and 10 showings before selling. And nearly 10% say they had no in-person showings at all and were still able to sell their home using the increasingly useful and popular virtual tour option fueled by the pandemic.
The National Association of Realtors reports a whopping 88% of the homes sold in April were on the market for less than a month, while Homes.com says 27% of sellers surveyed saying they accepted offers $10,000 or even $20,000 higher than their requested sales price, according to their seller survey.
Sellers are becoming increasingly demanding as well, expecting more than offers over the asking price. Many surveyed say they refused consideration of contingencies or other strings-attached offers. They look for all-cash payments, no contingencies, and 30 days or less to close. Fourteen percent said they opted to sell their home “as is.”
Source: RealtorMag, 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
Rates are trending higher this morning. Last week the MBS market remained unchanged. This caused rates to move sideways for the week. Even though rates ended unchanged, we did see some volatility through the week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas with the greatest ability to move rates this week. 1) The Fed, 2) Domestic, and 3) Geopolitical.
1) The Fed: The Federal Reserve Open Market Committee (FOMC) will begin two days of meetings on Tuesday that will culminate with their Interest Rate Decision and Policy Statement on Wednesday at 2:00 pm ET. While there is no chance of a change in their Fed Funds Rate, the market is very much on edge to see if the policy language shifts to a more "hawkish" tone which may include discussion about a "taper" (reducing the amount of their monthly Treasury and MBS purchases) or a "twist" (keeping the same level of purchases but shifting those dollars to shorter-term or longer-term instruments). This remains a lower probability, though, as the Fed has been quite clear that they are not near the point of adjusting their QE program. The market is focused on if at least the discussion is beginning (publicly) around tapering. Also, this is one of the meetings where we get their Economic Projections (the famous "dot plot chart"). Bonds will be very reactive to changes in the "groupings" of dots for inflation and rates.
2) Domestic Flavor: We get some key data on Tuesday, including Retail Sales and PPI.
3) Geopolitical: Congress is back in full session this week, and markets are keen on if an infrastructure deal can make it out of the House or Senate.
This Week's Potential Volatility: High
Rate markets have a lot to digest this week. The Fed on Wednesday is the most significant event this week that can move rates. As denoted above, rate markets will pay close attention to the language in the policy statement. On Tuesday, the Producer Prices could increase volatility, but rate markets will likely remain on hold until Wednesdays.
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.
The 10 yr. up 1 bp at 9:00 am ET; FNMA 2.5 30 yr. coupon -6 bps.
There are no economic releases today. This is FOMC week, and it's totally dominating trader thoughts, although there are many key economic releases; retail sales, PPI, housing starts and permits, NAHB housing market index, among other data points.
Federal Open Market Committee meets Tuesday and Wednesday to discuss where policy is headed next. Last year, Fed officials redefined their goal of full employment as an "inclusive and broad-based" one. What does the FOMC think about the current condition, and what will the policy statement and Powell reveal (if anything) about any plans to begin tapering off the $120B a month of purchases of treasuries and MBSs? One former Fed official, Kevin Warsh, commented last week that the Fed should immediately stop purchasing MBSs.
Markets have been tiptoeing around inflation; is it expected to increase, or is it a short-term blip driven by supply chains that were hit by the pandemic and not last much longer? The debate is evenly divided. Some concerned others not so much. On jobs, at the last meeting, Fed policymakers had said the figures indicate the job market is still a long way off from the "substantial further progress" they've outlined as a condition to begin scaling back monetary support. The employment-to-population ratio for White Americans was three percentage points below where it was in February 2020, and for Asian Americans, it was down 2.8 percentage points. But for Black Americans, it was 3.9 percentage points lower, and for Hispanic or Latino Americans, it was 4.5 percentage points below pre-pandemic levels.
Much of the concern about inflation centers on wages. The government, in hindsight, made a major error by extending and expanding monthly help for those unemployed, providing more money than working. Getting more relief from the government than can be made working is a no-brainer; why wouldn't you stay home? Businesses need to increase pay, and the government's largesse will end soon. So far, wage growth has been holding up well relative to past downturns, especially for Americans in the bottom 25% of the earnings distribution. Wage growth for that group was 4.2% in the 12 months through May, versus 3.4% for the entire workforce, according to a measure compiled by the Atlanta Fed. Businesses now have to decide to increase wages and, with that, increase their prices; and inflationary spiral. Once wages increase, they can't be reversed. What will the policy statement and Jerome Powell have to add?
At 9:30 am ET, the DJIA opened -40, NASDAQ +8, S&P -2. 10 yr. at 9:30 am 1.47% +1 bp. FNMA 2.5 30 yr. coupon at 9:30 am -11 bps from Friday's close, and -24 bps from 9:30 am Friday.
There are no scheduled data points today, but the calendar has some major releases tomorrow, Wednesday, and Thursday. The FOMC mixed in, and markets will have a lot to digest. This week is one best seen as cautious with all that is coming. The stock indexes opened weaker at 9:30 am and continue to decline at 10:00 am.
10 yr. note: 1.49% +3 bp
5 yr. note: 0.77% +3 bp
2 Yr. note: 0.17% +2 bp
30 yr. bond: 2.17% +3 bp
Libor Rates: 1 mo. 0.072%; 3 mo. 0.118%; 6 mo. 0.152%; 1 yr. 0.239% (6/11/21)
30 yr. FNMA 2.0: @9:30 101.09 -11 bp (-16 bp from 9:30 Friday)……at 10:00 am -25 bps today
30 yr. FNMA 2.5: @9:30103.45 -11 bp (-24 bps from 9:30 Friday)……at 10:00 am -22 bps today
30 yr. GNMA 2.5: @9:30 103.11 -14 bp (-19 bp from 9:30 Friday)…….at 10:00 am -20 bps today
Dollar/Yuan: $6.3987 unch
Dollar/Yen: 109.88 +0.20 yen
Dollar/Euro: $1.2123 +$0.0012
Dollar Index: 90.43 -0.13
Gold: $1860.50 -$19.10
Bitcoin: 36,716 +306
Crude Oil: $71.66 +$0.75
DJIA: 34,345 -134
NASDAQ: 14,111 +42
S&P 500: 4241 -6 bp
Very early this morning (6:00 am ET), the 10 yr. note dropped to 1.43% from 1.44% yesterday; by 8:30 am ET, 1.45% +1 bp. MBS prices started lower this morning. No specific news early today that directly impacts the markets. The only scheduled data today, the mid-month U. of Michigan consumer sentiment index.
The G-7 meeting started today. It's not likely any market-moving news will come from it. Most of the discussions will be on the economic recovery as the world's most-developed nations discuss ways out of the pandemic even as the number of cases is rising worryingly in the UK. Also, look for signs of whether Brexit-related tensions will flare up in meetings on the side. There were questions about whether the meeting would be canceled with infections increasing. Regardless, nothing will come of the meeting that will have any impact on bond traders.
Yesterday's May CPI data sent inflation fears to another high level. CPI was expected +0.4%, as reported +0.6%; yr./yr. expected +4.6% increased to 5.0%. Excluding food and energy the core expected +0.4% increased 0.7%, yr./yr. expected at +3.4% increased to 3.8%. Markets were putting a lot of emphasis on the report looking for potential increases in inflation. The norm is that inflation is a serious drag on interest rates; fixed-income investments lose value as interest rates increase. Not the case these days; the foreign demand for US treasuries and continued reliance on the Fed's outlook that inflation in prices won't last long sent interest rate falling Wednesday and yesterday.
A bipartisan group of senators said they had reached an agreement on an infrastructure proposal that would be fully paid for without tax increases. Ten Senators didn't say what the plan is when they made the statement. Rumors circulating the plan called for $579B above expected future federal spending on infrastructure. The overall proposal would spend $974B over five years and $1.2T if it continued over eight years. The plan would need the buy-in from a broader group of Republicans and Democrats and the White House. Sen. Mitt Romney (R., Utah), a group member, said yesterday that they were looking at indexing the gas tax to inflation. The federal gasoline tax hasn't been increased since 1993.
At 9:30 am ET, the DJIA opened +94, NASDAQ +3, S& +5. 10 yr. at 9:30 am 1.45 -1 bp. FNMA 2.5 30 yr. coupon at 9:30 am -3 bps from yesterday's close, and +8 bps from 9:30 am yesterday.
At 10:00 am ET, the mid-month U. of Michigan consumer sentiment index was thought to be at 84 from 82.9; as released, the index increased to 86.4.
Interest rates have declined this week, the 10 yr. down 10 bps on two days. This morning the 10 yr. is holding at 1.46% +2 bps, MBS prices down 5 bps from yesterday. Late yesterday, after 4:00 pm ET, MBS prices declined to end the session down 3 bps. Next Wednesday, the FOMC meeting and Powell's press conference will likely keep interest rates from falling further. The Fed has continued to say any near-term increases in consumer prices due to supply chain issues won't last long, and overall, markets continue to rely on what the Fed is saying. Other than the media hype about yesterday's CPI growth, the interest rate markets have not taken the inflation bait.
Between now and next Wednesday afternoon, we don't expect interest rates will move much. The 10 yr. note relative strength index at its lowest since August 2020.
10 yr. note: 1.47% +2 bp
5 yr. note: 0.74% +2 bp
2 Yr. note: 0.15% +1 bp
30 yr. bond: 2.16% +3 bp
Libor Rates: 1 mo. 0.072%; 3 mo. 0.119%; 6 mo. 0.148%; 1 yr. 0.239% (6/10/21)
30 yr. FNMA 2.0: @9:30 101.25 -19 bp (+8 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.69 -3 bp (+8 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.30 -8 bp (+22 bp from 9:30 yesterday)
Dollar/Yen: 109.70 +0.38 yen
Dollar/Euro: $1.2114 -$.0062
Dollar Index: 90.40 +0.33
Gold: $1886.40 -$10.00
Bitcoin: 39,716 +306
Crude Oil: $70.58 +$0.29
DJIA: 34,504 +38
NASDAQ: 14,045 +25
S&P 500: 4245 +6
Based on the May CPI data released at 8:30 am ET this morning, inflation is heating up. The consumer prices were expected +0.4%, as reported +0.6%; yr./yr. expected +4.6% increased to 5.0%. Excluding food and energy the core expected +0.4% increased 0.7%, yr./yr. expected at +3.4% increased to 3.8%. Markets were putting a lot of emphasis on the report looking for potential increases in inflation. Consumer prices have finally begun to increase after producer prices have been increasing for the last three months. The gains were fairly broad and driven by steady growth in the costs of used vehicles, household furnishings, airfares, and apparel. It's the same question markets have been wrestling with for months, are the increases we are seeing temporary as the Fed continues to espouse, or whether they will become more ingrained against a backdrop of massive fiscal and monetary policy support.
Wages are increasing, and the general belief has been wages won't increase much. That assumption, as we have noted previously, may be the biggest miss in years. The government is forcing wages higher with excessive stimuli; the additional $300.00 per week keeping people from returning to work is scheduled to end soon. Meanwhile, businesses have had to increase wages to attract workers, signing bonuses and other incentives along with wages increasing. Here is the thing, increasing pay to attract workers back can't be undone later; once a business establishes wages, they can't be lowered in the future, so wherever wages are, they are here to stay.
Weekly unemployment claims, also released at 8:30 am ET, were expected at 369K, as released 376K, down 9K from the prior week. The 4-week average continues to decline, 402.50K down from 428K the prior week. Continuing claims for ongoing state benefits fell by 258,000 the week ending May 29th, the biggest drop since mid-March, to 3.5 million.
The 10 yr. note in the past two sessions fell 10 bps as demand increased. Yesterday's 10 yr. note auction saw the strongest demand in two years. Foreign governments continue to increase buying US treasuries as the dollar falls, a hedge from their own negative rates. The news this morning took some of that enthusiasm away for now. Traders and investors are putting unusual emphasis on CPI data this morning as a measure of inflation expectations, a reaction to the recent declines in rates over the past few sessions. The Fed takes note but mostly relies on the personal consumption expenditures released with monthly personal income and spending, that data won't be reported until June 25th.
At 9:30 am ET, the DJIA opened +192, NASDAQ +25, S&P +17. 10 yr. at 9:30 am 1.52% +3 bp.(at 10:00 am unch). FNMA 2.5 30 yr. coupon at 9:30 am-14 bps from yesterday's close and -12 bp from 9:30 am yesterday.
At 1:00 pm ET, Treasury will sell $24B of 30s; yesterday's 10 yr. couldn't have been much stronger, demand at record highs.
At 2:00 pm ET, Treasury will report the May budget, another monthly deficit of $230B expected.
President Biden is in Europe for the G-7 meeting in England. Inflation discussions will be interesting. Bank of England chief economist Haldane warned that monetary policy is in its most dangerous place since 1992 and that resurgence in demand coupled with shrinking or static supply would invite persistent inflationary pressures. The European Central Bank said it would keep its aggressive monetary stimulus in place despite mounting evidence of a vigorous economic recovery and rising inflation in the Eurozone as the Covid-19 pandemic recedes.
10 yr. note: 1.49% unch
5 yr. note: 0.75% unch
2 Yr. note: 0.15% unch
30 yr. bond: 2.1`7% unch
Libor Rates: 1 mo. 0.074%; 3 mo. 0.124%; 6 mo. 0.156%; 1 yr. 0.240% (6/9/21)
30 yr. FNMA 2.0: @ 9:30 101.17 -20 bp (-16 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @ 9:30 103.61 -14 bp (-12 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @ 9:30 103.02 -41 bp (-29 bp from 9:30 yesterday)
Dollar/Yuan: $6.3939 +$0.0062
Dollar/Yen: 109.60 -0.04 yen
Dollar/Euro: $1.2184 +$0.0004
Dollar Index: 90.29 +0.17
Gold: $1895 -$1.00
Bitcoin: 38,125 +1719
Crude Oil: $70.49 +$0.53
DJIA: 34,685 +237
NASDAQ: 14,027 +114
S&P 500: 4248 +29
Interest rates continue to decline again this morning. The 10 yr. broke a key support level yesterday, closing at 1.54%. This morning selling of 10 yr. notes pushing the rate down to 1.49%, also breaking the next technical resistance at 1.50%. Finally, the fear of inflation is waning somewhat. There is no reason to believe there won't be any increases in prices and an increase in the inflation rate. The markets haven't capitulated entirely on the potential of inflation, just not as worried about a little increase that, according to the Fed, won't be much and won't last long when the supply chains heal and begin to return to normal in a few months. Interest rates are falling in Germany; its 10 yr. bund now at the most negative over the last month.
A gauge of expected volatility in interest rates has dropped to its lowest since March, as markets show a willingness to look through short-term releases. Incoming data so far have done little to dissuade the Federal Reserve from its argument that price rises will be temporary, keeping the bond market supported. Last week's much-anticipated payroll numbers showed US job growth picked up in May, but not enough to intensify worries about rising inflation. One takeaway on the decline in rates today and yesterday; tomorrow's CPI report that provides consumer prices isn't likely to bother traders; the current estimates for May CPI, +0.4%, ex-food and energy +0.4%. Annually prices are expected to climb 4.2% on an annualized basis in April, the most since 2008, and economists expect a figure of 4.7% in May.
Globally interest rates are declining today, adding support for the US rate slide this morning. China's most widely watched inflation measure -- the producer price index -- surged to its highest since 2008, surpassing estimates. China's bond yields responded with a shrug, sitting little changed on the day. China's May CPI was down 0.2% m/m (expected -0.1%; last -0.3%) but up 1.3% yr./yr. (expected 1.6%; last 0.9%). May PPI was up 9.0% yr./yr. (expected 8.5%; last 6.8%).
Biden departed for Britain this morning on his first trip abroad since taking office, an eight-day mission. The first stop, the G-7 meeting. Next week on the 16th, Biden is scheduled to sit down with Putin, his last stop in Europe. Tomorrow he will have a meeting with British Prime Minister Boris Johnson. His trip also includes travels to Brussels for talks with leaders of NATO and the European Union.
This morning we got weekly MBA mortgage applications for last week; the composite down 3.1%, purchase apps +0.3%, while refinance apps fell again -5.0%.
At 9:30 am ET, the DJIA opened quietly +2, NASDAQ opened +64, S&P +7. 10 yr. note at 1.48% -6 bps from yesterday (by 10:00 am at 1.47%). FNMA 2.5 30 yr. coupon +13 bps from yesterday's close and +6 bps from 9:30 am yesterday.
At 10:00 am ET, April preliminary wholesale inventories expected +0.8%, as reported +0.8%.
This afternoon at 1:00 pm ET, Treasury sells $38B of 10 yr. notes. Given the recent decline in the 10 yr. rate and the damage done to technical support levels, markets will be paying close attention to the demand.
10 yr. note: 1.47% -7 bp
5 yr. note: 0.73% -4 bp
30 yr. bond: 2.16% -6 bp
Libor Rates: 1 mo. 0.077%; 3 mo. 0.128%; 6 mo. 0.154%; 1 yr. 0.240% (6/8/21)
30 yr. FNMA 2.0: @9:30 101.34 +20 bp (+11 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.72 +13 bp (+6 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.31 +17 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.3850 -$0.0155
Dollar/Yen: 109.28 -0.21 yen
Dollar/Euro: $1.2208 +$0.0035
Dollar Index: 89.88 -0.20
Gold: $1900.90 +$6.50
Bitcoin: 34,863 +1225
Crude Oil: $70.34 +$0.29
DJIA: 34,592 -18
NASDAQ: 13,968 +43
S&P 500: 4231 +4
The trading range the 10 yr. has been tightly confined for two and a half months broke open this morning. The 10 yr. broke 1.55% at 6:30 am ET this morning, dropping to 1.52% by 8:30 am. MBS prices started +5 bps and quickly increased 13 bps by 8:30 am. The breakout is surprising many and causing short-term traders to cover their treasury buying. Traders were buying safety due to a breakdown of the internet on some key websites, including Bloomberg and other major sites. An outage at Fastly Inc., a cloud-based content platform that serves many leading international websites, sent swaths of the web offline early this morning. Fastly is one of many high-level website and application hosting services that large enterprises use to serve millions of users simultaneously. According to Fastly, the problem has been fixed. With the recent increased fear of ransomware attacks, the breakdown spooked traders.
Inflation, the concern this year, so far nothing but with prices of materials rates are staying at low levels. Little snippets from several Fed officials recently suggest the Fed is thinking about reigning in its monthly purchases of treasuries and MBSs. So far, nothing official, but that is the way the Fed operates (leak out comments) well in advance of action giving economists investors time to assess positions and tilt the rhetoric toward where the Fed wants to lead. The Fed’s operations and policies are at odds with other key central banks. No other major central bank has adopted anything like the Fed’s present framework. Since the onset of the pandemic in February 2020, the Fed has bought 56% of total Treasury issuance of $4.5 trillion. The Fed’s asset purchases represent 76% of the cumulative federal fiscal deficit. In an article in the WSJ this morning, Kevin Walsh, a former of the Fed board, suggests the Fed should stop buying mortgage securities immediately. Soon after, it should slow its purchases of Treasury debt. It should not tolerate Fed-financed fiscal expansion. The takeaway remains unchanged; inflation gets a lot of talk but so far hasn’t shown to be an issue, and the Fed doesn’t currently believe it will be any worry. Over the weekend, in London, Treasury Sec. Janet Yellen said inflation increases and a little higher interest rates would be beneficial for the economy.
Early this morning, the May NFIB small business optimism index expected at 100.6 from 99.8 in April was unchanged from April at 99.6.
At 9:30 am ET, the DJIA opened +2 NASDAQ +66, S&P +7. 10 yr. 1.53% -4 bps FNMA 2.5 30 yr. coupon at 9:30 am +8 bps from yesterday’s close and +16 bps from 9:30 yesterday.
At 10:00 am ET, April JOLTS job openings exploded to the highest openings since 2000. Expected at 8.045 mil, as released 9.286 mil and March openings revised from 8.123 mil to 8.288 mil.
Inflation, inflation, inflation; that is all the talk, from the Fed, from investors, from hedge funds, from money managers. So far not seeing any; Thursday, May CPI is the next inflation gauge. Even if inflation edges higher, it isn’t likely to increase much, and the consensus in markets is if it does edge higher, it won’t last long. The key question now, will the Fed stay too long with its accommodative stance and fall behind with monetary policy.
Technically, the break below 1.55% is bullish; will it last is the question. If the technical break today is due to the brief internet issues, that will not support lower rates for long.
10 yr. note: 1.53% -3 bp
5 yr. note: 0.76% -3 bp
2 Yr. note: 0.15% -1 bp
30 yr. bond: 2.21% -4 bp
Libor Rates: 1 mo. 0.081%; 3 mo. 0.123%; 6 mo. 0.160%; 1 yr. 0.24% (6/7/21)
30 yr. FNMA 2.0: @9:30 101.22 +17 bp (+24 bp from 9:30yesterday)
30 yr. FNMA 2.5: @9:30 103.66 +8 bp (+16 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.33 +14 bp (+14 bp from 9:30 yesterday)
Dollar/Yuan: $6.3979 +$0.0005
Dollar/Yen: 109.43 +0.17 yen
Dollar/Euro: $1.2180 -$0.0010
Dollar Index: 90.11 +0.16
Gold: $1895.80 -$3.00
Bitcoin: 32,668 -1803
Crude Oil: $68.64 -$0.60
DJIA: 34,575 -55
NASDAQ: 13,918 +37
S&P 500: 4224 -3
Forbearance for multi-family property owners is extended
Multi-family landlords, who have been sweating the end of the impending forbearance (delayed payment) period resulting from the pandemic economy, have been extended some relief for the next few months after learning that the Federal Housing Finance Agency (FHFA) has extended their options through the end of September.
According to HousingWire’s Georgia Kromrei, the regulator also extended protections for tenants that property owners must adhere to access forbearance. She notes that FHFA director Mark Calabria drew attention to the uneven pandemic recovery in a prepared statement. Job losses in the service industry sector severely impacted renters, while those who have maintained their jobs remotely have fared much better.
Says Calabria: “While Covid-19 cases are declining and many homeowners continue to emerge from forbearance, many renters, who are unable to benefit from rising home prices, have not financially recovered from the pandemic.” All the while, homebuyers who were able to snag homes in more affordable areas during the pandemic have lowered their housing costs even further, a recent Redfin study found.
In order for multi-family property owners to receive this reprieve, the federal forbearance options include requiring property owners to notify their tenants while their debt payments are on hold. “During forbearance, property owners can’t evict tenants solely for non-payment of rent,” says Kromrei. “Landlords also can’t charge late fees or penalties for non-payment of rent. They must also give tenants flexibility to repay the rent over time, not necessarily in a lump sum. If property owners do evict, they must give tenants at least a month’s notice to leave.”
The 11 million+ Americans who are behind on their rent include a disproportionate number of minorities, leaving them at a higher risk for evictions, according to data from the Private Equity Stakeholder Project. “Tenants, who are often in the dark about the financing of the building where they rent, can use the respective GSE (Government Sponsored Enterprise) property online tools to determine whether their building is federally backed.
Source: RHousingWire | TBWS
Rates Currently Trending: Neutral
Rates are trending sideways this morning. Last week the MBS market improved by +5 bps. This caused rates of fees to remain unchanged last week. Rate markets experienced elevated volatility through the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move rates this week: 1) Inflation, 2) Central Bank, and 3) Treasury.
1) Inflation: Just how long will the market believe the Fed's "transitory" mantra? This week's Core (ex-food and energy) CPI is expected to be above 3%, with the Headline CPI above 4%. The bigger this number is, the worse it will be for rates. While the Fed is on a media blackout period leading up to their next FOMC meeting, Treasury Secretary Janet Yellen has given an interview where she said that slightly higher interest rates would be positive for both the Consumer and in the Fed's minds as well.
2) Central Bank: We will get key interest rate decisions and policy statements from the European Central Bank and the Bank of Canada.
3) Treasury: While we have three days of dumping our debt into the marketplace this week, it will be Thursday's 30 year Treasury bond auction that will get the most attention from bond traders and has the greatest correlation with the long term bond yields. Here is this week's schedule:
We have another important week for rate markets. We expect rate markets to remain relatively tame, heading into Thursday. However, we get a ton of inflation data on Thursday that could move rate markets and spark volatility.
US Treasury is moving ahead with Janet Yellen’s global minimum tax for the large and multi-nation tax deal, 15% minimum tax on all businesses doing business globally. She met with G-7 countries over the weekend. In a simple comment, it isn’t likely to fly in the US Congress. The idea is to control countries from tax wars where countries race each other to the bottom to attract businesses. It has been talked about over the years but always died a quick death; this time it may take longer to succumb, but it will. More talks are scheduled next month at the G-20 meeting in Italy. Any accord must also have support from a majority of about 140 nations involved in negotiations under the Organization for Economic Cooperation and Development. After that, Yellen will have to convince Congress, and that will be difficult with Republicans. American companies will be at a significant disadvantage until other governments agree to hamstring their own firms.
“The Biden Administration hopes these global tax rules will make it easier for American progressives to run rampant through the US tax code without harming the economy. That hope is receding as the realities of the deal come into focus. American workers, consumers and shareholders will pay the price.” (WSJ)
Last Friday, a key technical day for the US interest rates; May employment data wasn’t anything spectacular but enough to generate buying of treasuries. The 10 yr. note gathered momentum Friday morning, and its yield dropped 8 bps to the longer-term technical resistance at 1.55%, where buying stopped on the proverbial dime. 1.55%, the lowest 10 yr. rate going back to mid-March. This morning the 10 y up 2 bps at 1.57%.
This week, most of the potential market movement will be focusing on Washington and the Biden infrastructure bill that is slowly moving to a vote. Republicans and a few centrist Democrats are not jumping on the bandwagon with the present bill, but the leader of the opposition, Senator Joe Manchin, said Sunday he won’t support the For the People Act passed by House Democrats, potentially dooming the legislation. He also said he wouldn’t support ending the filibuster rule. The voting bill looks dead presently.
At 9:30 am ET, the DJIA opened +31, NASDAQ -12, S&P +1. 10 yr. 1.57% +2 bps. FNMA 2.5 30 yr. coupon -8 bps from Friday’s close and -3 bps from 9:30 am Friday morning.
This afternoon at 3:00 pm April, consumer credit is expected +$20B.
This week, there are only two data points that matter; weekly claims and May CPI, both out on Thursday. Treasury will sell 10s and 20s that will be closely watched.
It will take additional negative news for interest rates to break below 1.55%, a two moth trading range low.
10 yr. note: 1.57% +2 bp
5 yr. note: 0.80% +1 bp
2 Yr. note: 0.16% +1 bp
30 yr. bond: 2.25% +2 bp
Libor Rates: 1 mo. 0.081%; 3 mo. 0.128%; 6 mo. 0.164%; 1 yr. 0.246% (6/4/21)
30 yr. FNMA 2.0: @9:30 100.98 -8 bp (+3 bp from 9:30 Friday)
30 yr. FNMA 2.5: @9:30 103.50 -8 bp (-3 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 103.19 -5 bp (unch from 9:30 Friday)
Dollar/Yuan: $6.3974 +$0.0022
Dollar/Yen: 109.22 -0.32 yen
Dollar/Euro: $1.2175 +$0.0009
Dollar Index: 90.04 -0.09
Gold: $1890.80 -$1.20
Bitcoin: 36,457 +519
Crude Oil: $69.72 +$0.10
DJIA: 34,724 -32
NASDAQ: 13,804 -10
S&P 500: 4222 -8