July 7th, 2021 8:53 AM by Richard Sardella MLO.100007700/NMLS 233568
Treasuries and other sovereign debt are falling fast over the last 24 hours. This morning more selling of treasuries taking the 10 yr. down to 1.30% -6 more basis points added to -8 bps fall yesterday. However, MBS prices in early trading did not change much. It is a global move jettisoning all inflation worries that had been building for months. Economic improvement, supply chain issues, and commodity prices running hot built a head of steam since the beginning of the year, taking the bellwether 10 yr. note from 1.0% in January to 1.74% in early April; 74 bps. Since then, the worries about inflation have been lessening, slowly declining until yesterday when recent resistance at 1.44% broke. Once that occurred, the dam broke, and investors hanging on to inflation fears finally capitulated. MBSs participated in the decline yesterday; this morning, prices are generally unchanged.
Investors are again questioning the strength of the global recovery and mulling the threat of new Covid-19 variants and prospective central bank tightening, particularly by the Federal Reserve. Yesterday, the June ISM non-manufacturing index didn’t meet forecasts, adding more angst to the economic outlook. The ISM’s measure of order backlogs was the highest in the group’s data back to 1997. At the same time, an index of services employment dropped to the lowest level this year, slumping to 49.3 from 55.3 a month earlier. The June figure mirrored a similar result from the ISM’s survey of manufacturers, which also showed employment contracted. The services index of inventories also shrank, indicating that supply chain constraints continue to hold back economic activity.
This afternoon, the FOMC minutes at 2:00 pm ET, always important, this time even more so with the heavy selling of treasuries yesterday and this morning. Will the minutes increase ideas that the Fed will begin tapering the monthly buying of treasuries and MBSs, mostly MBSs that will likely be the first assets sold by the Fed. The lack of improvement in MBS prices this morning is reflective of that view.
Weekly MBA mortgage applications continue to decline; overall apps last week -1.8%, purchase apps -1.0%, re-finances -2.0%. It was a holiday week.
At 9:30 am ET, the DJIA opened +21 after dropping 209 yesterday, NASDAQ +54, S&P +9. 10 yr. note at 9:30 am 1.33% -2 bps from yesterday (1.30% at 7:30 am this morning). FNMA 2.5 30 yr. coupon at 9:30 am unchanged from yesterday and +13 bps from 9:30 yesterday.
At 10:00 am ET, May JOLTS job openings expected at 9.30 mil from 9.286 mil in April; as released 9.209 mil.
The 10 yr. note is technically oversold at the moment and not likely to fall more today. From now until after 2:00 pm, there isn’t likely to be much movement and even after the FOMC minutes. The interest rate markets need to consolidate the heavy selling of yesterday and this morning. 1.30% is now the new near-term resistance. This Friday, the G-20 finance ministers are scheduled to meet; there is a sea change developing now that economic growth won’t meet the lofty outlooks that drove US and global equity markets to record highs. The debate that dominated markets for a month now about inflation fears has been settled with the decline in interest rates. We have to focus on the weekly close for the 10 yr. note. If it closes below 1.30%, there is a strong probability the 10 yr. could drop to 1.0%, negating all of the increase since the beginning of the year.
PRICES @ 10:00 AM ET
10 yr. note: 1.30% -6 bp
5 yr. note: 0.79% -1 bp
2 Yr. note: 0.21% -1 bp
30 yr. bond: 1.93% -5 bp
Libor Rates: 1 mo. 0.102%; 3 mo. 0.134%; 6 mo. 0.166%; 1 yr. 0.242% (7/6/21)
30 yr. FNMA 2.0: @9:30 101.47 unch (+19 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.69 unch (+13 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.28 -5 bp (+1 bp from 9:30 yesterday)
Dollar/Yuan: $6.4669 -$0.0123
Dollar/Yen: 110.72 +0.08 yen
Dollar/Euro: $1.1804 -$0.0018
Dollar Index: 92.63 +0.08
Gold: $1804.40 +$10.20
Bitcoin: 34,742 +766
Crude Oil: $73.65 +$0.28
DJIA: 34,601 +24
NASDAQ: 14,698 +35
S&P 500: 4349 +6
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.