September 20th, 2021 8:56 AM by Richard Sardella MLO.100007700/NMLS 233568
Overnight and early this morning the DJIA traded down 750 points. The 10 yr note at 1.31% -6 bps, MBS prices began +23 bps frm Friday. Global stock markets selling off also. Worsening sentiment out of China, and a ratcheting up of geopolitical tensions has led to the pullback. With a raft of central bank meetings and announcements this week and soon after, the market is becoming nervous that the ‘transitory’ inflation narrative will be undermined by continued strong inflation data, leading to an earlier-than-expected policy tightening. Equity markets have climbed with the biggest uninterrupted rallies in history. It was bound to happen, professionals and savvy investors and traders were increasingly worried and today heavy selling after a choppy week that ended with essentially no changes in the US key indexes.
The route today is over concerns that real estate developer Evergrande Group in China that is in default on its debt. That the Chininese government will let Evergrande fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest for any publicly traded real estate management or development company in the world. Will the government step in a the last moment to save the company?
This is the Fed’s week with the policy statement and Jerome Powell’s press conference on Wednesday. The policy statement is likely to continue the Fed’s positive economic outlook and still hang on to the mantra that inflation is transitory, always leaving the definition unanswered. It’s been months now that the belief that the current supply chain disruption won’t last; the supply chain is affecting all corners of the slow down, and still getting worse. Computer chips slowing auto production, the winter is coming and supplies of natural gas dwindle and fears of shortages this winter sending prices soaring.
So far this morning it has been volatile; at 8:30 am ET MBS prices +23 bps, at 9:15 am +14 bps; the 10 yr note 1.32% steady but remains over the 1.30% pivot level.
At 9:30 am the DJIA opened -566, 200 points better than at 8 am; NASDAQ -279, S&P -73. The 10 yr note 1.32% -5 bp. FNMA 2.0 30 yr +13 bps, +22 bp frm 9:30 am Friday; the 2.5 coupon +8 bps and +16 bps frm 9:30 am Friday.
Treasury borrowing limits and how to extend or end the debt limits shaping up to a battle in Congress. Democrats moving ahead with a vote in the face of strident GOP opposition, raising doubts about whether Congress will take action before the federal government runs out of cash. It is shaking markets as it always does when the debt limit approaches as it does every couple of years. The last time a debt limit impacted markets was back in 2011, then S&P lowered the US debt rating and weakend demand for Treasury’s from foreign investors, pushing up yields and in turn the government’s debt costs. Last week JP Morgan warned “With no clear path toward debt-limit resolution over the near term, we are at the point where this could begin to impact financial conditions,” they said in a note to clients.
At 10 am Sept NAHB housing market index, expected at 75 unchanged from August; the index
Strong volatility so far this morning, and likely to continue through the day. Since August 25th the 10 yr note has traded between 1.30% and 1.37%; the range is likely to remain intact until the FOMC on Wednesday afternoon, then dependent on what Powell has to say. The current trading range on the 10 yr won’t last much longer; when the range cracks the initial move in the direction of the breakout will be strong. The longer the range stays the bigger the movement when it breaks.
PRICES @ 10:00 AM
10 yr note: 1.33% -4 bp
5 yr note: 0.84% -2 bp
2 Yr note: 0.22% unch
30 yr bond: 1.86% -4 bp
Libor Rates: 1 mo 0.083%; 3 mo 0.123%; 6 mo 0.152%; 1 yr 0.224 (9/17/21)
30 yr FNMA 2.0: @9:30 am 101.06 +13 bp (+22 bp frm 9:30 am Friday)
30 yr FNMA 2.5: @9:30 am 103.66 +8 bp (+16 bp frm 9:30 am Friday)
30 yr GNMA 2.5: @9:30 am 103.23 -19 bp (+17 bp frm 9:30 am Friday)
Dollar/Yuan: $6.4655 -$0.0007
Dollar/Yen: 109.61 -0.38 yen
Dollar/Euro: $1.1716 -$0.0011
Dollar Index: 93.31 +0.12
Gold: $1757.30 +$5.90
Bitcoin: 44,072 -3,460
Crude Oil: $71.0-7 -%0.90
DJIA: 34,130 -454
NASDAQ: 14,805 -239
S&P 500: 4371 -62
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.