December 1st, 2020 9:15 AM by Richard Sardella MLO.100007700/NMLS 233568
The 10 yr. started 0.86% +2 bps this morning, but it didn't hold. The stock indexes are rallying after selling yesterday. MBS prices slightly lower at 8:30 am ET after strong price gains yesterday and last Friday (+47 bps), but fell rapidly after that (-17 bps at 9:00 am). MBSs are seeing a lot more buying now than the safer but lower rate 10 yr. note. The Fed is buying MBSs, higher interest rates, and not much concern about duration normally plaguing mortgages when interest rates fall. It is not likely that interest rates will decline as long as the economic outlook in the US and globally are perceived to be improving. With vaccines on the way, the Fed's support by purchasing treasuries, MBSs, corporate bonds… and the Democrats are expected to unleash enormous spending; the equity market outlook is very optimistic among investors. Although the Fed will keep the Federal Funds rate low, the path for long-dated treasuries is up... eventually; but presently, no movement on the 10 yr. note. A bullish economic outlook that currently exists will lead to increased inflation and higher interest rates, although rates will still be characterized as being low.
Biden will formally introduce his top economic policy advisers today. Neeta Tandem, to serve as his White House budget chief, will face difficulty being confirmed. Her selection yesterday to lead the Office of Management and Budget drew swift objections from GOP senators who could block her confirmation, with Senator John Corny of Texas calling her selection "radioactive."…. "Most Republicans are open to any reasonable nominee by the incoming administration," he told reporters on Capitol Hill. "We're prepared to try to work with the vice president once the vote's certified, but she certainly strikes me as his worst nominee so far."
At 9:30 am ET, the DJIA opened +310, NASDAQ +96, S&P +36. 10 yr. 0.89% +4.5 bps. FNMA 2.0 30 yr. coupon -19 bps from yesterday's 22 bp gain and unchanged for 9:30 am yesterday.
At 10:00 am ET, Nov ISM manufacturing index expected at 57.7 from 59.3; as released 57.5, employment at 48.4, very weak and disappointing although no reaction to it as rates and prices are getting hit this morning. October construction expected +0.8% increased 1.3%, yr./yr. +3.7%.
Jerome Powell testifies this morning on the Coronavirus Aid, Relief, and Economic Security Act before the Committee on Banking, Housing, and Urban Affairs at US Senate. In prepared text released the day before today's testimony, Jerome Powell said the economic outlook remains "extraordinarily uncertain" and recovery will largely depend on the success of efforts to keep the pandemic in check. He repeated prior comments that the vaccine's progress is very positive for the "medium term", yet for now he said significant challenges remain, especially regarding its production and distribution: "It remains difficult to assess the timing and scope of the economic implications of these developments with any degree of confidence," he said. Powell repeated that economic activity has continued to recover though the pace of improvement has "moderated". Powell said household spending on goods, especially durables, has been "strong" and has moved above its pre-pandemic level; in contrast, spending on services remains "low" due to weakness in virus-exposed sectors, including travel and hospitality. The Fed chair noted that the overall rebound in household spending is due, in part, to federal stimulus payments and expanded unemployment benefits. He said more than half of the 22 million jobs that were lost in March and April had been regained, although here too, he said the pace of improvement has moderated. Joblessness has been especially severe for lower-wage workers in the services sector: "The economic dislocation has upended many lives and created great uncertainty about the future." Fed actions since April have helped to "unlock" almost $2 trillion of funding to support businesses large and small, nonprofits, and state and local governments.
Fundamentally the outlook for long-term interest rates will edge up; technically, all of our indicators we use are bearish and have been so two months even though the 10 yr. still stays within its tight range but with an obvious uptrend pattern.
PRICES @ 10:00 AM ET
10 yr. note: 0.91% +6 bp
5 yr. note: 0.41% +5 bp
2 Yr. note: 0.16% +2 bp
30 yr. bond: 1.65% +8 bp
Libor Rates: 1 mo. 0.153%; 3 mo. 0.227%; 6 mo. 0.255%; 1 yr. 0.330% (11/30/20)
30 yr. FNMA 2.0: @9:30 103.77 -19 bp (unch from 9:30 yesterday) (at 10:00 -30 bps)
30 yr. FNMA 2.5: @9:30 104.72 -12 bp -3 bp from 9:30 yesterday) (at 10:00 -20)
30 yr. GNMA 2.5: @9:30 104.94 -27 bp (-1 bp from 9:30 yesterday) (at 10:00 -36 bp)
Dollar/Yuan: $6.5730 -$0.0059
Dollar/Yen: 104.55 +0.23 yen
Dollar/Euro: $1.1995 +$0.0070
Dollar Index: 91.66 -0.21
Gold: $1812.50 +$31.60
Crude Oil: $44.96 -$ 0.38
DJIA: 30,007 +369
NASDAQ: 12,338 +140
S&P 500: 3669 +48
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.