July 22nd, 2022 11:57 AM by Richard Sardella MLO.100007700/NMLS 233568
A major change in sentiment yesterday and so far, this morning. Yesterday kind of out of the blue the 10 yr. note rate declined 15 bps and at 8:30 am ET this morning down another 6 bps, that is almost a 25 bp decline in the 10 yr. note in less than 24 hours. For the last three weeks the consensus about how much the Fed would increase the FF rate next week changed, one week ago the sentiment gathered around a 100 bp increases. That has changed, today it’s a 75 bp increase expected. Now economists are re-thinking how far and how quickly the Fed will move. The ever-changing forecasts driven by incoming economic releases causing the outlook for much higher rates have diminished the last few days setting up the volatility and lower rates.
Now the new expectation looking past next week’s FOMC is a lift of rates by a half percentage point in September, then shift to quarter-point hikes at the remaining two meetings of the year. That would lift the upper range of the central bank’s policy target to 3.5% by the end of 2022, the highest level since early 2008, the previous top rate had been 3.75%. The survey of 44 economists did however add another 25 bps in 2023 to take it to the 3.75%. The economists expect the Fed to eventually step up its reductions in its balance sheet, which started this June with the runoff of maturing securities. The Fed is phasing in its reductions to an eventual pace of $1.1 trillion a year. Economists project that will bring the balance sheet to $8.4 trillion by year end, dropping to $6.5 trillion in December 2024. According to present view a recession is coming. “The Fed is between a rock and a hard place; we can’t get out of the inflationary environment we are in without suffering some pain and scars,” said Diane Swonk, KPMG LLP chief economist.
At 9:30 am the DJIA opened +156, NASDAQ -30, S&P +5. 10 yr. at 9:30 am 2.79% -9 bps. FNMA 4.5 30 yr. coupon +30 bps and +74 bps from 9:30 am yesterday.
At 9:45 am the July Flash PMI index, expected at 51.8 for manufacturing and 52.3 for services as released the composite crumbled to 47.5 from 52.3 in June; manufacturing index at 49.9 and services at 47.0. Any index below 50 is considered contraction. The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and are typically based upon around 85 percent of the full survey sample. The flash Manufacturing and PMI readings from Germany and France slipped into contraction.
Technically, the 10 yr. note yield at 2.79% is very close to its lows on the pullbacks going back to the end of April. On declines the 10 found support at 2.74% on three occasions before reversing. At 10 am the 10 is at 2.74%.
PRICES @ 10:00 AM
10 yr note: 2.74% -14 bp
5 yr note: 2.84% -14 bp
2 Yr note: 2.95% -14 bp
30 yr bond: 2.95% -10 bp
Libor Rates: 1 mo 2.259%; 3 mo 2.783%; 6 mo 3.377%; 1 yr 3.919% (7/21/22)
30 yr FNMA 5.0: @10:00 101.00 +47 bp (+78 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @10:00 102.03 +33 bp (+72 bp from 9:30 am yesterday)
30 yr GNMA 4.0: @10:00 100.39 +42 bp (+97 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7582 -$0.0085
Dollar/Yen: 136.28 -1.07 yen
Dollar/Euro: $1.0214 -$0.0015
Dollar Index: 106.79 -0.12
Gold: $1724.80 +$11.40
Bitcoin: 23,515 +382
Crude Oil: $96.33 -$0.02
DJIA: 32,043 +6
NASDAQ: 11,971 -88
S&P 500: 3986 -13
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.