CHM Blog

Stocks opened weaker, the 10 yr. note is below 1.40%, MBS prices better.

The omicron variant looks less like a crisis, South Africa delivered some positive news on the omicron coronavirus variant, reporting a much lower rate of hospital admissions and signs that the wave of infections may be peaking. Only 1.7% of identified Covid-19 cases were admitted to hospital in the second week of infections in the fourth wave, compared with 19% in the same week of the third delta-driven wave.

Markets turning toward inflation as this week a number of central banks, led by the Fed, warned inflation is the main concern. The Fed signaled it is ready to increase rates, the BOE did increase rates, the ECB held pat but warned the time is fast approaching it will cut its QEs and prepare to increase rates. The inflation concerns no longer a function of the pandemic, took the Fed and Jerome Powell months to see the light. So, why are rates falling and not moving up? We commented yesterday, while inflation is the headline the timing is so far off that investors believe the Fed’s inflation outlook in 2022 will be half of what it is currently. The belief now is the Fed’s first opportunity to increase the FF rate is in June after the taper, that is a long way off to be discounting higher rates.

Yesterday the biggest drop in rates across the curve was at the short end where a rate hike would impact the most; the 2 yr. note down 4 bps, the 5 down 6 bps, 10 down 2 bps and the 30 unchanged. Tech stocks after sky-rocketing most of this year continue to decline on worries of higher rates; equity markets had become extremely over-valued, and the correction is underway; not new news. Investors assessing the potential impact on inflation and growth from policy shifts by the world’s largest central banks.

At 9:30 am the DJIA opened -196, NASDAQ -124, S&P -30. 10 yr. at 9:30 am 1.39% -3 bps. FNMA 2.5 30 yr. coupon at 9:30 am +8 bps from yesterday’s close and +24 bps from 9:30 am yesterday.

There are no data points today, trading dependent on equity market movements.

Money moving from equities to safety in treasuries, the idea of the Fed raising rates remains, but the timing is so far off (6 mos.) that investors hedging in treasuries has been profitable. Hedging in treasuries is working well, as rates fall the prices increase and work to offset some of the losses in stock valuations. Rates likely to remain low as long as pressure continues in stocks. One key concern, the Democrat spending bill and what will actually get passed. Not going to be the $5 trillion total that has been scored by CBO, not going to pass until at least mid-January and it wouldn’t surprise if it still isn’t passed. To get something from the Biden bill Democrats are going to have to jettison many of those entitlements in the bill, so far progressives are standing firm just as Joe Manchin is in resisting entitlements (entitlements never are terminated or reduced that would make the bill no cost.

PRICES @ 10:00 AM

10 yr. note: 1.38% -4 bp

5 yr. note: 1.15% -2 bp

2 Yr. note: 0.62% unch

30 yr. bond: 1.81% -5 bp

Libor Rates: 1 mo. 0.104%; 30 mo. 0.214%; 6 mo. 0.311%; 1 yr. 0.524% (12/16/21)

30 yr. FNMA 3.0: @9:30 am 103.80 +3 bp (+17 bp from 9:30 am yesterday)

30 yr. FNMA 2.5: @9:30 am 102.34 +8 bp (+24 bp from 9:30 am yesterday)

30 yr. GNMA 2.5: @9:30 am 102.41 -23 bp (+31 bp from 9:30 am yesterday)

Dollar/Yuan: $6.3743 +$0.0060

Dollar/Yen: 113.39 -0.32 yen

Dollar/Euro: $1.1305 -$0.0024

Dollar Index: 96.21 +0.16

Gold: $1807.80 +$9.60

Bitcoin: 45,810 -2.302

Crude Oil: $70.97 -$1.41

DJIA: 35,399 -496

NASDAQ: 15,064 -117

S&P 500: 4620 -50

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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