August 9th, 2021 9:27 AM by Richard Sardella MLO.100007700/NMLS 233568
Last Friday the July employment report showed more jobs than expected, although not super-sized compared to estimates. The reaction sent interest rates higher and MBS prices lower; the 10 yr. +8 bps on Friday to close at 1.30% a key technical support level as we note last week. This morning the 10 yr. note at 8:00 am ET 1.27% -3 bps. Early trade this morning, the DJIA -112, S&P -7.
No new news that inflation is on the front burner, is it transitory, and what is the definition of transitory as defined by the Fed? The Fed speaks in its own language letting markets define Fed speak in determining what the Fed believes. Based on a number of comments from Fed officials the definition is being pushed forward recently. On Wednesday the July CPI and on Thursday July PPI provides another look at consumer and wholesale inflation.
Yesterday, 18 Republicans joined with all 50 senators who caucus with Democrats to limit debate on the infrastructure bill, an indication of bipartisan support for passage, which could come late Monday or early Tuesday. It’s a $550B infrastructure package for bridges, roads, tunnels and other manly structural physical improvements. There are still more negotiations though; wording in part of the bill that would require cryptocurrency entities to report transactions to the IRS. Then the big one, the $3.5 trillion budget resolution that will set the stage for Democrats to pass the remainder of President Joe Biden’s economic agenda. The Senate was initially scheduled to leave Washington for its August recess last week, but it will remain in session for several more days while lawmakers finish work on the infrastructure bill and then turn to the $3.5 trillion budget resolution.
Interest rates have declined since June, something most money managers and investors didn’t expect, or believe could happen. The economic recovery is very strong, prices increasing; the idea was wide spread that interest rates would increase. That trade has turned out badly; beginning in early July interest rates began to fall instead of increase. It happens often in a number of markets, that whenever most get on one side and get proven wrong the rush to the door actually accelerates the correction; unwinding the positions accentuates the movement. In the case of interest rates it has fueled the decline in interest rates over the last six weeks. Investors moved to cover their shorts—the act of buying Treasuries to close out bets that their price would fall—they helped advance the rally and compelled others to do the same.
At 9:30 am ET the DJIA opened -28 after being down 112 points at 8 am; NASDAQ opened +32, S&P +3. 10 yr. at 9:20 am 1.28% -2 bps. FNMA 2.0 30 yr. coupon at 9:30 am +17 bps from Friday’s close and -4 bps from 9:30 am Friday. Friday selling in the rate markets as the day went n MBS price was down 43 bps for the day.
At 10 am June JOLTS job openings, expected at 9.285 mil, still lots of jobs out there and next month the extraordinary monthly payments to these not working will end. Job openings soared to 10.073 mil. Beliefs are that once that happens many workers will return. The issue presently is the spread of the Delta variant that may stall economic growth.
The 10 holding its technical support at 1.30% is a momentary positive but not a sea change.
PRICES @ 10:00 AM ET
10 yr. note: 1.28% -2 bp
5 yr. note: 0.75% -1 bp
2 Yr. note: 0.20% -1 bp
30 yr. bond: 1.93% -1 bp
Libor Rates: 1 mo. 0.095%; 3 mo. 0.128%; 6 mo. 0.149%; 1 yr. 0.237% (8/6/21)
30 yr. FNMA 2.0: @9:30 105.55 +17 bp (-4 bp from 9:30 am ET Friday)
30 yr. FNMA 2.5: @9:30 103.97 +14 bp (-1 bp from 9:30 am ET Friday
30 yr. GNMA 2.5: @9:30 103.36 -2 bp (-14 bp from 9:30 am ET Friday)
Dollar/Yuan: $6.4819 -$0.0017
Dollar/Yen: 110.11 -0.12 yen
Dollar/Euro: $1.1764 unch
Dollar Index: 92.76 -0.04
Gold: $1742.30 -$20.80 (4 month low)
Bitcoin: 45,465 +1824
Crude Oil: $66.43 -$1.85 (weaker economic outlook in China)
DJIA: 35,107 -108
NASDAQ: 14,834 -1
S&P 500: 4428 -8
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.
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MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.