June 8th, 2021 12:31 PM by Richard Sardella MLO.100007700/NMLS 233568
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.
PRICES @ 10:00 AM ET
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
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.