CHM Blog

The FOMC meeting begins today; nothing new until the meeting concludes at 2 pm ET tomorrow afternoon, then Jerome Powell will hold his press conference.

Overnight the stock indexes improved after the beat downs yesterday. At 8:30 am DJIA +249, NASDAQ +105, &P +30. 10 yr. note at 8:30 am 1.31% unchanged from yesterday and better than 1.35% at 3:30 am this morning.

At 8:30 am August housing starts and permits, both stronger than forecasts; starts 1.615 mil against 1.575 mil forecasts, permits 1.728 mil, estimates 1.610 mil. U.S. homebuilding, rose 3.9% in August compared with July, the current level of starts is up 17.4% compared with the same month a year earlier. Permits, which can be a bellwether for future home construction, rose 6.0% in August. The number of single-family houses under construction but not yet completed, a measure of backlogs, rose to 702,000, the most since 2007, further underscoring builders’ struggle to keep up with demand. The August strength came in a 21.6% jump in construction of apartment units which offset a 2.8% fall in construction of single-family homes.

The House is expected to vote on a suspension of the debt limit this week through December 2022 attaching it to a short-term spending bill, setting up a clash with Republicans over preventing both a partial government shutdown and a potential default on U.S. debt. Republicans saying they wouldn’t supply any votes for an effort to raise the government’s borrowing limit in protest to Democrats’ plans to move trillions of dollars in new spending through Congress. Raising the debt limit doesn’t authorize new spending, but rather allows the Treasury Department to issue new debt to cover spending that Congress already has authorized, including payments to bondholders, Social Security recipients and veterans. Treasury debt and the debt limit is an ongoing event, it comes up every two years and always a political stand-off; at the end of the day the US will not default on its debt, back in 2011 it almost did cause a debt default; S&P actually lowered US debt ratings.

At 9:30 am the DJIA opened +139, NASDAQ +73, S&P +20. 10 yr. 1.31% unchanged. FNMA 2.0 30 yr. coupon +2 bps and +3 bp from 9:30 am yesterday; the 2.5 coupon +3 bps and +3 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $24B of 20 yr. bonds.

The Fed should make it clear when it will actually begin ending the $120B a month purchases of treasuries and MBSs when we get the policy statement and Powell’ press conference tomorrow; it should but may not occur, just more of ‘we are thinking about it’. The central bank should announce the immediate initiation of a tapering of quantitative easing with a goal of eliminating monthly purchases in the first half of next year; and it should signal through its forward policy guidance a gradual lifting of near-zero interest rates starting in the second half of next year. The Fed has to face down its opinion that inflation is just a temporary concern. Inflation increasingly looks like it isn’t going to abate soon and possibly increase and last longer than what had been thought. What we think the Fed will do is continue to kick the can, signaling the possible start of a taper later this year or early next year, reiterating that the taper decision is decoupled from the policy rate decision, signaling a delayed and slower interest rate normalization and packaging all of this in more uncertainty.

The rate markets should be quiet today ahead of FOMC tomorrow. Stock indexes also should settle down after yesterday.

PRICES @ 10 AM ET

10 yr. note: 1.31% unch

5 yr. note: 0.82% unch

2 Yr. note: 0.21% -1 bp

30 yr. bond: 1.87% +2 bp

Libor Rates: 1 mo. 0.083%; 3 mo. 0.125%; 6 mo. 0.152%; 1 yr. 0.226% (9/20/21)

30 yr. FNMA 2.0: @9:30 am 101.09 +2 bp (+3 bp from 9:30 am yesterday)

30 yr. FNMA 2.5: @9:30 am 103.69 +3 bp (+3 bp from 9:30 am yesterday)

30 yr. GNMA 2.5: @9:30 am 103.19 +2 bp (-4 bp from 9:30 am yesterday)

Dollar/Yuan: $6.4674 +$0.0013

Dollar/Yen: 109.33 -0.08 yen

Dollar/Euro: $1.1732 +$0.0004

Dollar Index: 93.17 -0.11

Gold: $1775.50 +$11.70

Bitcoin: 43,235 -320

Crude Oil: $70.59 +$0.30

DJIA: 34,181 +211

NASDAQ: 14,792 +78

S&P 500: 4381 +23

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.