Morning Report: Mortgage rates lag Treasury yields

Vital Statistics:

 

Last Change
S&P futures 3217 -17.25
Oil (WTI) 63.87 0.74
10 year government bond yield 1.78%
30 year fixed rate mortgage 3.89%

 

Stocks are lower as the markets continue to digest the Iranian strike last week. Bonds and MBS are up.

 

Friday’s rally in the bond markets left some LOs disappointed, as mortgage backed securities barely moved. This is typical behavior to big shocks in the bond markets – mortgage backed securities (and therefore mortgage rates) invariably lag. We are seeing the same effect again this morning with bond yields falling and MBS barely moving.

 

Senior central bankers saw a possibility that interest rates could go even lower in the future, driven by changing demographics (in other words, an aging population). This is precisely the issue that has been dogging Japan for the past 30 years.

 

There was nothing earth-shattering in the FOMC minutes which were released on Friday. The Fed did nothing at the December meeting, so no new revelations were really expected. Officials “discussed how maintaining the current stance of policy for a time could be helpful for cushioning the economy from the global developments that have been weighing on economic activity.” Note that the latest NY Fed forecast has Q4 GDP coming in at 1.1%, which seems far below the other forecasts out there. This was largely due to the weak December ISM survey which showed manufacturing continue to decline. New orders, production, and employment all were contracting. The report was actually the weakest since 2007. It is probably too early to tell if this is a temporary blip or the new Phase 1 deal with China will make a difference. Punch line: No rate hikes for a while

 

 

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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