June 11th, 2021 10:00 AM by Richard Sardella MLO.100007700/NMLS 233568
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.
PRICES @ 10:00 AM ET
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
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.