September 10th, 2021 5:44 PM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday the 10 yr. note fell 4 bps to its significant technical pivot at 1.30%, MBS prices improved 17 bps. This morning at 8:30 am ET August producer price index was reported; prior to the release the 10 yr. at 1.32% +2 bps, MBS prices down 8 bps from yesterday. PPI expected +0.6% increased to 0.7%; yr./yr. expected +8.3%, as reported +8.3% and up from +7.8% in July. The core PPI (less food and energy) expected +0.5% increased 0.6%; yr./yr. expected +6.6%, as reported +7.3%. Excluding food, energy and trade services increased 6.3% yr./yr. from 6.1% in July. Persistent supply chain disruptions squeezing production costs higher. Although inflation did increase a little more than estimates there was no reaction to the report compared to where rates and prices were prior to 8:30 am. PPI is lower than in July. On Monday August consumer prices; which are forecast to show a 0.4% advance in the CPI from the prior month and a 5.3% increase from August of 2020.
There are no other economic releases today that will influence trading.
Interest rates have flat-lined the last two weeks. Fed tapering coming, inflation edging higher, the economic outlook, even with the current Delta slowdown is almost universally believed to be short-lived. While rates have held steady so far there is an increasing belief interest rates will begin to increase when the Fed puts the final decision on tapering in play when the FOMC meets on the 22nd of the month. Tapering is going to occur, the only remaining issues are when it will start (we look to November to begin). Worries abound that as the Fed and ECB begin to cut support that rates will increase.
Fed Vice Chairman Richard Clarida said last month he thought the risks of higher-than-projected inflation were more prominent than the risks of lower-than-anticipated inflation. He also said he thought the unemployment rate could fall to 3.8% next year with inflation running above 2.1%, which would satisfy by the end of next year the thresholds the Fed has laid out to raise interest rates. Fed officials have pushed to conclude the asset purchases by the middle of next year to clear the decks for a potential rate increase. It could be even trickier if new projections at the coming meeting show most officials expect they will need to raise rates next year.
At 9:30 am the DJIA opened +208, NASDAQ +98, S&P +26. 10 yr. 1.32% +2 bp. FNMA 2.0 -9 bps and -1 bp from 9:30 am yesterday; 2.5 unch and +7 bp from 9:30 am yesterday.
Democrats in the House are readying the $3.5 trillion social infrastructure bill; its Nancy Pelosi’s plan to bring the bill to a vote within the next two weeks. The House Ways and Means, Education, Labor committees introduced the text of their sections of the $3.5 trillion-plus spending bill late Tuesday and Wednesday. As the WSJ commented today; “On your mark, set, go for the 100-meter dash. Within 36 hours, the committees had begun mark-ups. Pelosi wants a vote by Sept 27th.
Standing back for a wider view; with strong stimulus on the horizon, increases in taxes, the Fed backing away from its monthly buying and the government taking evermore control of the economy it isn’t realistic to expect interest rates will decline but will increase. Presently though there is not much reason to jump the gun now, interest rates are more likely to continue in the tight ranges until more details are cemented; that will take a month or so and very dependent on how the Delta variant impacts economic growth.
PRICES @ 10:00 AM ET
10 yr. note: 1.32% +2 bp
5 yr. note: 0.80% +2 bp
2 Yr. note: 0.22% +1 bp
30 yr. bond: 1.92% +2 bp
Libor Rates: 1 mo. 0.082%; 3 mo. 0.114%; 6 mo. 0.146%; 1 yr. 0.223% (9/9/21)
30 yr. FNMA 2.0: @9:30 am 101.33 -9 bp (-1 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 am 103.95 unch (+7 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 am 103.25 -39 bp (-16 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4380 -$0.0174
Dollar/Yen: 109.89 +0.15 yen
Dollar/Euro: $1.1826 unch
Dollar Index: 92.45 -0.03
Gold: $1796.00 -$4.40
Bitcoin: 45,874 -394
Crude Oil: $69.67 +$1.53
DJIA: 34,885 +5
NASDAQ: 15,331 +82
S&P 500: 4502 +8
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.