April 11th, 2022 11:08 AM by Richard Sardella MLO.100007700/NMLS 233568
This morning more new highs with the 10 yr. note at 2.75% +9 bps, that’s 10 bps in less than two trading sessions. MBS prices opened 37 bps lower than Friday’s 42 bp fall.
Inflation data and Treasury auctions headline this week. Today the only scheduled event, treasuries 3 yr. note auction at 1 pm ET. We do have a few Fed speakers scheduled, including Raphael Bostic, Michelle Bowman and Christopher Waller at a Fed Listens event starting around 9.30 am New York time. The Fed's Charles Evans will speak on the economy and monetary policy at 12:40 pm.
Inflation based on the March forecast is continuing to increase but there are a few economists talking about inflation saying it is likely to flat line in the months ahead, still high but not increasing. The inflation outlook isn’t likely to change, embedded in the economy now, wages aren’t keeping up, look for wage pressures to increase. Food prices and shortages are very possible with global supplies of grains and energy hampered by Russia and its belligerent attack on Ukraine.
At 9:30 am the DJIA opened -95, NASDAQ -154, S& -26. 10 yr. at 9:30 am 2.76% +6 bp (+10 bps from 5 pm Friday). MBS prices lower, the 4.5 FNMA coupon at 9:30 am -22 bps from Friday’s close and -39 bps from 9:30 Friday. Investors continue to bail on the 4.0 coupon, at 9:30 am the 4.0 -41 bps.
At 1 pm $46B 3 yr. note auction
The recent spike in interest rates is beginning to hurt consumers, investors are growing more skittish about bonds backed by consumer debt, worried that inflation and slowing growth will increase the number of low-income borrowers falling behind on car payments or credit-card bills. The WSJ reporting Wall Street’s enthusiasm for consumers’ debt has helped finance a surge in lending. About $900B of loans to individuals that were packaged into tradable bundles and sold to investors as bonds was outstanding last year, Moody’s data show, supporting record borrowing for homes, cars and even electronics. Debt owed by households topped $15 trillion for the first-time last year, according to the New York Federal Reserve. Consumer-debt bonds made up one of the best-performing corners of the debt markets during much of the pandemic. When Covid-19 struck in 2020, investors raced for the exits at first, fearing that lockdowns and business closures would lead to a surge in defaults. Instead, hefty government-assistance programs and forbearance from lenders kept even many of the most marginal borrowers on their feet. Bond yields increasing, consumer-debt yields are rising even faster, a sign that traders believe the relative risk is increasing. Bonds backed by the most-traded category of subprime auto loans have recently yielded 1.45 percentage points more than standard benchmarks, according to data from JPMorgan Chase & Co., up from a 0.9-percentage-point premium, or spread, at the start of the year. Yields also have climbed for bonds backed by credit-card debt and other types of consumer debt.
Inflation data this week adds risk of increased volatility; forecasts are for increases in CPI and PPI; if the reports are not as bearish, technically the bond and mortgage markets are oversold. Any relief in inflation increases, whether an anomaly or not, should push traders out off their short positions setting off volatility. IF that were to occur, it would be a short covering moment but not a change in the wider inflation outlooks.
10 yr note: 2.76% +5 bp from 5:00 pm Friday, (down 10 from trading last night)
5 yr note: 2.79% +3 bp
2 Yr note: 2.54% +8 bp
30 yr bond: 2.78% +9 bp
Libor Rates: 1 mo 0.514%; 3 mo 1.012%; 6 mo 1.540%; 1 yr 2.271% (4/8/22)
30 yr FNMA 4.0: @9:30 100.27 -41 bp (-39 bp from 9:30 am Friday)
30 yr FNMA 4.5: @9:30 102.11 -22 bp (-33 bp from 9:30 am Friday)
30 yr GNMA 4.0: @9:30 100.81 -42 bp (-65 bp from 9:30 am Friday)
Dollar/Yuan: $6.3684 +$0.0033
Dollar/Yen: 125.47 +1.17 yen
Dollar/Euro: $1.091 +$0.0015
Dollar Index: 99.96 +0.17
Gold: $1966.30 +$20.70
Bitcoin: 41,137 -2017
Crude Oil: $93.94 -$4.39
DJIA: 34,462 -96
NASDAQ: 13,7567 -144
S&P 500: 4452 -36
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 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.