October 18th, 2021 9:06 AM by Richard Sardella MLO.100007700/NMLS 233568
Last Friday the 10 ended back above 1.55% and MBS prices dropped 33 bps before the end of the day. This morning selling continuing, at 9 am ET 10 1.63% +5 bps and MBS prices down 28 more bps. Last Friday as we noted inflation concerns increased when the key major bank CEOs and large money managers all agreeing on the inflation outlook. Inflation being transitory has finally become a myth, as we noted a month ago; the big banks are getting in line. BofA, Morgan Stanley, and JP Morgan Chase all agreeing now that this increase in inflation is not temporary. Goldman Sachs Group President John Waldron also said this week that inflation is not transitory -- a sentiment echoed by BlackRock’s CEO Larry Fink, who added it’s “definitely not transitory.”
This morning and overnight global bond yields rose and most stocks fell as surging energy prices cemented worries about inflation and reinforced bets on policy tightening. Bank of England Governor Andrew Bailey warned on the need to respond to price pressures. Rate-hike bets have also picked up in the U.S., Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years.
China’s economy is slowing quickly, Q3 GDP 4.9% down from 7.9% in Q2. It’s housing crisis growing and electricity shortages dragged down economic growth last quarter, with signs there will be more pain to come as the country heads into winter. Beijing has signaled it’s not rushing to stimulate the economy, suggesting growth may continue to slow in the coming months.
At 9:15 am Sept industrial production dropped 1.3% while capacity utilization at 75.2% down from 76.4% in August.
At 9:30 am the DJIA opened -144, NASDAQ -55, S&P -16. 10 yr. 1.61% +4 bps. FNMA 2.5 30 yr. coupon -16 bps from Friday and -31 bp from 9:30 am Friday.
At 10 am October NAHB housing market index, expected at 75 from 76 in Sept, the index leaped to 80.
Bitcoin going public today, an ETF that you can buy, or sell, if you have a brokerage account.
The 10 yr. this morning at a new high since the middle of June. Inflation fears escalated on Friday with comments from banks and money managers (see above). Meanwhile the Fed remains convinced inflation isn’t going to last, it is the last bastion still not convinced. The Federal Reserve’s army of more than 400 Ph.D. economists has a message on inflation for policy makers and the American public: Chill out. The Fed’s staff is predicting inflation will be back under 2% in 2022, according to minutes of last month’s Federal Open Market Committee meeting released last Wednesday. It’s less than half the 4.3% pace that the Fed’s preferred measure of price pressures recorded in the year through August.
So markets begin the week where it left off Friday, debating inflation forecasts. Got to admit the Fed is consistent that inflation won’t last long; thing is to believe the Fed now will be a very costly trade. Looking into next year is a very long time for markets that currently are not buying what the Fed may believe. Interest rates (the 10 yr.) climbed steadily from the end of 2020 to April, from 0.90% to 1.74% when the COVID fears faded, now the 10 is on its way back to that level; we expect 1.74% levels will be tested before the end of this year. The path won’t be smooth but with the outlook for increasing prices for food and energy this winter inflation concerns won’t be easy to ignore.
Some early volatility this morning.
PRICES @ 10:00 AM
10 yr. note: 1.60% +3 bp
5 yr. note: 1.16% +3 bp
2 Yr. note: 0.42% +3 bp
30 yr. bond: 2.03% -1 bp
Libor Rates: 1 mo. 0.080%; 3 mo. 0.123%; 6 mo. 0.160%; 1 yr. 0.279% (10/15/21)
30 yr. FNMA 3.0: @9:30 am 104.31 -6 bp (-14 bp from 9:30 am Friday)
30 yr. FNMA 2.5: @9:30 am 102.39 -16 bp (-31 bp from 9:30 am Friday)
30 yr. GNMA 2.5: @9:30 am 102.20 -16 bp (-28 bp from 9:30 am Friday)
Dollar/Yuan: $6.4310 -$0.0043
Dollar/Yen: 114.23 -0.03 yen
Dollar/Euro: $1.1598 unch
Dollar Index: 93.98 +0.04
Gold: $1764.60 -$3.70
Bitcoin: 61,853 +1,285
Crude Oil: $83.19 +$0.91
DJIA: 35,210 -84
NASDAQ: 14,898 -3
S&P 500: 4468 -3
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.