CHM Blog

The 10 year note ended the day yesterday at 4.09%, when futures markets opened later the yield began to decline. Moody’s Investor service downgraded 10 small and midsize US banks and said it may downgrade major lenders including U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp. as part of a sweeping look at mounting pressures on the industry; the news sparked a run to safety into treasuries. Moody’s pointed to higher funding costs, risks tied to commercial real estate loans and concerns over regulatory capital requirements. The banks that were cut; M&T Bank Corp., Webster Financial Corp., BOK Financial Corp., Old National Bancorp, Pinnacle Financial Partners Inc., and Fulton Financial Corp. Northern Trust Co. and Cullen/Frost Bankers Inc. are also under review for downgrades. Moody’s also adopted a “negative” outlook for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp., Citizens Financial Group Inc., Fifth Third Bancorp, Regions Financial Corp., Ally Financial Inc., Bank OZK and Huntington Bancshares Inc.

The decision by Moody’s brings back worries over the banking system that had rocked banks a few months ago when Silicon Valley Bank failed along with other banks having to merge because of capital issues that were fueled by continuing high interest rates. Higher rates erode bank assets, commercial real estate loans are the last thing banks want to do with the industry suffering huge loses, re-finance those loans is difficult under the present economic conditions, Moody’s worried it will drag down bank balance sheets. The Moody’s decision triggering a broad move to safe havens across the globe, US stock indexes traded lower overnight, the 10 year note at one point down 13 bps.

In other news, Philadelphia Fed’s Harker indicated that the central bank could be at the end of its current rate-hiking cycle. “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions, we have taken do their work,” the FOMC voting member said in a speech. Harker indicated there are unlikely to be rate cuts anytime soon. Yesterday Fed governor Bowman said higher rates are likely to curb inflation. Also, yesterday over the weekend NY Fed Williams said in an interview with the NY Times that rates could come down in 2024 as inflation decelerates. Markets are pricing in more than an 85% probability that the Fed holds steady at its Sept. 19-20 meeting.

At 9:30 am the DJIA opened -217 after rallying 408 yesterday, NASDAQ opened -111, S&P -26. The 10 year note 4.00% -9 bps. FNMA 6.0 30 year coupon at 9:30 am +12 bps and +5 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $42B of 3 year notes, tomorrow $38B of new 10 year notes and Thursday $23B of new 30s. Thursday and Friday CPI and PPI, respectively.

PRICES @ 10:00 AM

10 year note: 3.99% -10 bp

5 year note: 4.08% -9 bp

2 year note: 4.74% -3 bp

30 year bond: 4.16% -11 bp

30 year FNMA 6.0: @9:30 am 100.52 +12 bp (+5 bp from 9:30 am yesterday)

30 year FNMA 5.5: @9:30 am 99.07 +21 bp (+13 bp from 9:30 am yesterday)

30 year GNMA 5.5: @9:30 am 99.09 +11 bp (+7 bp from 9:30 am yesterday)

Dollar/Yuan: $7.2184 +$0.0248

Dollar/Yen: 143.06 +0.59 yen

Dollar/Euro: $1.0939 -$0.0064

Dollar Index: 102.73 +0.69

Gold: $1960.40 -$9.60

Bitcoin: 29,437 +220

Crude Oil: $80.54 -$1.39

DJIA: 35,110 -387

NASDAQ: 13,826 -168

S&P 500: 4476 -43

SOFR Data 08/08: 30-DAY AVERAGE(%): 5.16441, 90-DAY AVERAGE(%): 5.12111, 180-DAY AVERAGE(%): 4.95789, INDEX: 1.09133322

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.

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