Morning Report: US bond yields anchored by creeping Eurosclerosis.

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are flat.

The MBA Secondary Conference was held in NYC on Monday and Tuesday, and it seemed (at least to me) to be much more sparsely attended than in prior years. The most obvious example was the HUB or the conference floor, where there were about half the number of booths. You could see it in the major sessions, where the seats were maybe 25% taken. Of course the secondary conference is largely an off-site event where people go to the various hotels around Times Square for meetings, but it definitely looks like traffic was down this year.

The big topic was growth and how to achieve it. Generally speaking most originators were focusing on non-QM as well as renovation loans as the best way to drive growth. Mergers were also mentioned as a way to increase volume. Mohammed El-Arian forecasted that rates will go nowhere in the near future, anchored by negative rates in Europe. The German Bund is trading at a negative yield of 8 basis points (in other words you have to pay for the privilege of lending to the German government), and many money managers prefer to invest in positive-yielding US Treasuries and roll the dice on the currency risk than to lock in a sure loss in German Bunds. He also doesn’t see any sort of recession for at least the next two years unless a massive trade war breaks out internationally.  You can see the creeping Eurosclerosis in the chart of the Bund yield below:

The Trump Administration is vetting Judy Shelton to fill a seat on the Federal Reserve Board. She is currently on the European Bank for Reconstruction and Development, which means she has already been through part of the confirmation process. She is in favor of keeping interest rates low, and has criticized the Fed’s methodology for setting the Fed Funds rate.

Existing home sales fell in April, according to NAR. They were down 4.4% from a year ago to a seasonally adjusted annual rate of 5.19 million. The median home price rose to 267,300 which is a 3.6% increase from a year ago. Inventory rose as well, to 1.83 million units, which represents a 4.2 month supply. Historically, 6 months would have been considered a balanced market, and we also have a mismatch between price points, where there is a glut of luxury properties and a shortage of entry-level homes. Days on market declined however to 24 days. “I think the market had a bit of a slow start in the Fall, but Realtors® all over the country have been telling me that April was a nice rebound. We’re hopeful and expect that this will continue heading into the summer,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota and broker at Edina Realty. “Homes over the last month sold quickly, which is not only a win-win for buyers and sellers, but it’s also great for the real estate industry.”

The mismatch between supply and demand is translating into more boomer empty-nesters staying in their homes. Trulia believes this is a matter of choice, but it may simply be the fact that there is not much demand for those 3,500 square foot homes. The demand is at the lower sizes and price points.

Mortgage applications rose 2.4% last week as purchases fell 2.4% and refis rose 8.3%. The average contract interest rate fell 7 basis points to 4.33%.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray