February 22nd, 2021 8:50 AM by Richard Sardella MLO.100007700/NMLS 233568
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.
PRICES @ 10:00 AM ET
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
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.