Morning Report: Bonds adjust to the prospect of no more rate cuts

Vital Statistics:

Stocks are higher this morning after Chinese President Xi Jinping committed to lowering tariffs and institutional transaction costs. Bonds and MBS are down.

The markets expect to see some sort of phase 1 trade deal with China in the coming weeks. The Wall Street Journal is reporting that China and the US are considering rolling back some tariffs. Separately, the Chinese central bank lowered rates to deal with a liquidity crunch.

There isn’t much data this week (as is typical after the jobs report) however we do have a lot of Fed-Speak so, we could see some movement in the bond markets as we adjust to the pause. For those keeping score at home, the December Fed Funds futures are signalling only a 5% chance of another rate cut this year. A month ago, they were handicapping a 44% chance of another cut.

Home prices rose 3.5% YOY according to CoreLogic. By their models, 36% of the top 100 MSAs are overvalued (including the NYC area), while 23% were undervalued and 41% were fairly valued. Their model compares housing values to disposable incomes to come up with a valuation score. They are forecasting home price appreciation to accelerate to 5.6% over next year. Note that Realtor.com said that listing prices rose 4.3% in October to a high of 312,000.

About 0.6% of all originations went DQ within 6 months, according to Black Knight Financial Services. While this is much lower than the pre-bubble years, it has been steadily increasing since the housing market bottomed. The concentration is primarily in first time homebuyers. Foreclosures remain under control, at levels last seen in 2005.

Author: Brent Nyitray

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