October 28th, 2021 8:57 AM by Richard Sardella MLO.100007700/NMLS 233568
MBS prices lower after a rather wild trading session yesterday. At 8:30 am ET the first of three looks at Q3 GDP, the advance report, expected to show growth in the quarter at 2.7% after Q2s strong growth of 6.7%; growth didn’t meet expectations, reported at 2.0%. The advance report doesn’t have some of the third month’s data included. Along with growth the report includes annual personal consumption expenditures; Q2 +12.0% yr./yr., expectations for Q3 0.7%, as reported +1.6% yr./yr. The third quarter the softest pace of the pandemic recovery period as it was snarled by supply chains issues and a surge in Covid-19 cases throttled spending. Shortages, transportation bottlenecks, rising prices and the delta variant of the coronavirus weighed on both goods and services spending. “The risks are clearly now longer and more persistent bottlenecks and thus higher inflation,” Fed Chair Jerome Powell said last week. “We now see higher inflation and the bottlenecks lasting well into next year.”
Also at 8:30 am weekly jobless claims for last week, expected at 290K unchanged from the prior week, showed initial jobless claims fell to 281,000 last week, a fresh pandemic low. Continuing claims, a measure of ongoing benefits, dropped by 237,000 in the week ended Oct. 16, the biggest decline since July. In all, 2.2 million people were collecting unemployment checks the week of Oct. 16, down from 7.7 million a year earlier.
Congress and Biden continue to rush through an acceptable spending plan that overnight shrunk to $1.75 trillion from $3.5 trillion originally proposed. The two main takeaways as of Wednesday evening were: the bulk of former President Donald Trump’s 2017 tax cuts will be left in place, while corporations will face a new minimum levy. It is a sprint to the finish with the president needing a deal to take to his summits in Europe on Friday. Lawmakers indicate that some of Biden’s core proposals -- including increasing the corporate income tax rate, the top marginal income tax rate and the capital gains rate -- are likely out, while other, more creative ideas, --like a minimum tax on the profits on corporate financial statements and a surtax on millionaires -- were still in the running. It remains unlikely a deal will make it through by tomorrow; Pelosi now saying Halloween. Two Democrat Senators. Manchin and Sinema have stood strong and forcing cuts in taxes and spending.
At 9:30 am the DJIA opened +102, NASDAQ +81, S&P +21. 10 yr. note 1.55% unch. FNMA 2.5 30 yr. coupon at 9:30 am -3 bps and +6 bps from 9:30 am yesterday.
At 10 Sept pending home sales, expected to have declined to +1.7% from +8.1% in August; as reported sales didn’t increase but fell -2.3%; higher rates, lack of inventory.
At 1 pm this afternoon Treasury will auction $62B of 7 yr. notes. Yesterday the 5 yr. auction shocked with very strong demand, the reaction pushed the 10 yr. note lower and MBS prices higher. The demand today for the 7 yr. note will be closely watched. So far this morning the MBS markets have been volatile, at 8:30 am -17 bps, at 9:30 am -3 bps; the 10 at 8:45 am 1.57% +2 bp, at 10 am 1.54% -1 bp.
Our technical models continue to rotate from neutral to bearish; the wider outlook hasn’t changed, interest rates are likely to continue to increase with inflation edging higher and expected to last a lot longer than was thought two months ago, and more companies announcing price increases. One factor that will influence rates in the near term is how equity markets perform; any selling trend will support rate markets on safe haven moves.
PRICES @ 10:00 AM
10 yr. note: 1.56% +1 bp
5 yr. note: 1.18% +3 bp
2 Yr. note: 0.51% +1 bp
30 yr. bond: 1.95% unch
Libor Rates: 1 mo. 0.087%; 3 mo. 0.128%; 6 mo. 0.179%; 1 yr. 0.332% (10/27/21)
30 yr. FNMA 3.0: @9:30 104.34 -3 bp (-2 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 102.69 -3 bp (+6 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 102.44 -23 bp (+3 bp from 9:30 yesterday)
Dollar/Yuan: $6.3962 +$0.0035
Dollar/Yen: 113.45 -0.36 yen
Dollar/Euro: $1.1645 +$0.0043
Dollar Index: 93.63 -0.17
Gold: $1803.30 +$4.50
Bitcoin: 61,377 +2,420
Crude Oil: $82.13 -$0.53
DJIA: 35,667 +179
NASDAQ: 15,341 +106
S&P 500: 4581 +29
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.