September 28th, 2021 8:49 AM by Richard Sardella MLO.100007700/NMLS 233568
Interest rates continue to increase this morning, the 10 yr. note now at its next technical support level at 1.55%, MBS prices at 8:30 am ET -30 bps from yesterday’s 20 bp decline.
Inflation, we have noted here for over a month that the Fed has been wrong in saying that inflation won’t last. Jerome Powell is scheduled to appear at the Senate Banking Committee today and say the recent increase in inflation may last longer than the Fed had expected, he will comment that the economy is continuing to strengthen but the supply chain issues are causing prices to increase. “Inflation is elevated and will likely remain so in coming months before moderating”. His remarks are part of his mandated testimony to Congress on the COVID-19 pandemic. “The process of reopening the economy is unprecedented, as was the shutdown. As reopening continues, bottlenecks, hiring difficulties, and other constraints could again prove to be greater and more enduring than anticipated, posing upside risks to inflation. If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal.”
The advance look at August US trade deficit, expected at -$87B was right on at -$87.5B; imports +0.8%, exports +0.7%. Advance August wholesale inventories were expected +0.4% but increased 1.2%.
At 9 am July Case/Shiller home price index expected +1.6%, as reported +1.5%. July FHFA home price index expected +1.5%, as released +1.4%; yr./yr. home prices increased 19.2% from 18.9% in June.
At 9:30 am the DJIA opened -82, NASDAQ -162, S&P -27. 10 yr. 1.54% +6 bps. FNMA 2.5 30 yr. coupon -17 bps and -18 bps from 9:30 am yesterday.
At 10 am Sept consumer confidence index, expected at 11.8 from 113.8 in August, the index fell to 109.3. The Present Situation Index—based on consumers' assessment of current business and labor market conditions—fell to 143.4 from 148.9 last month. The Expectations Index—based on consumers' short-term outlook for income, business, and labor market conditions—fell to 86.6 from 92.8.
At 1 pm Treasury will auction $62B of 7 yr. notes.
Senate Republicans blocked a Democratic bill that would both fund the government and raise the country’s borrowing limit, escalating a political showdown over the government’s finances just days before it runs out of money. Senate Democrats sought to pass a House-approved stopgap measure that funds the government through Dec. 3, 2021, and suspends the debt limit through Dec. 16, 2022. They are racing to send the legislation to President Biden’s desk before the government’s current funding expires at 12:01 a.m. Oct. 1.
The 10 at 1.55%, the level we believe that will stall the increase in rates. The 10 is very oversold on a moment to moment basis and it is likely to pause and consolidate the rapid recent increase. Since last Thursday when the inflation outlook and the Fed’s announcement that it would begin selling its recent purchases of treasuries and MBSs, possibly in November, and now Powell set to admit it, the 10 yr. note yield has increased from 1.33% to 1.54% this morning. Those trades that kept rates from increasing for six weeks, believing the Fed that inflation wasn’t likely, are almost all covered now. Not suggesting rates won’t continue to increase but presently additional selling should wane as traders and investors assess new incoming data. It is a technical observation, 10 yr. relative strength index is at a level that normally stops the directional move to consolidate.
PRICES @ 10:00 AM ET
10 yr. note: 1.55% +7 bp
5 yr. note: 1.03% +3 bp
2 Yr. note: 0.32% +1 bp
30 yr. bond: 2.09% +10 bp
Libor Rates: 1 mo. 0.086%; 3 mo. 0.131%; 6 mo. 0.155%; 1 yr. 0.236% (9/27/21)
30 yr. FNMA 2.5: @9:30 am 102.88 -17 bp (-18 bp from 9:30 am yesterday)
30 yr. FNMA 3.0: @9:30 am 104.39 -11 bp
30 yr. GNMA 2.5: @9:30 am 102.67 -9 bp (-11 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4612 +$0.0041
Dollar/Yen: 111.58 +0.57 yen
Dollar/Euro: $1.1672 -$0.0023
Dollar Index: 93.75 +0.36
Gold: $1734.30 -$17.70
Bitcoin: 42,205 -903
Crude Oil: $76.18 +$0.78
DJIA: 34,521 -348
NASDAQ: 14,684 -285
S&P 500: 4383 -59
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.