Morning Report: Bond yields flirting with 2016 lows

Vital Statistics:

 

Last Change
S&P futures 3251 -88.25
Oil (WTI) 51.16 -2.19
10 year government bond yield 1.38%
30 year fixed rate mortgage 3.63%

 

Stocks are lower this morning on overseas weakness, as investors continue to fret about Coronavirus, which is spreading beyond Asia. Bonds and MBS are up (yields down) on the flight to safety trade.

 

The 10-year Treasury is trading just off the lows of 2016, where it hit 1.36%. FWIW, that is a modern historical low – long term rates never fell below 2% even in the Great Depression. How low can rates go? The thing about bubbles is that they on longer and further than anyone expects. How many people are talking about a sovereign debt bubble? It hasn’t even registered yet.

 

Existing Home Sales fell 1.3% MOM in January to an annualized rate of 5.46 million. Lawrence Yun, NAR’s chief economist, finds the outlook for 2020 home sales promising despite the drop in January. “Existing-home sales are off to a strong start at 5.46 million.” Yun said. “The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales.” The median existing home price was $266,300 up 6.8% from a year ago. The first time homebuyer accounted for 32% of sales.

 

Fannie and Freddie will be freed with “limited and tailored” government backstops, according to US Treasury Secretary Steve Mnuchin. SIFMA has warned that removing the explicit government guarantee from Fannie and Freddie’s MBS would have a devastating impact on the market. Remember during the crisis, a trial balloon was floated about removing the government guarantee, and Bill Gross shot it down with a howitzer. No mention was made of what will happen to current stockholders.

 

Wells agreed to pay $3 billion to settle DOJ and SEC cases over the fake accounts scandal. Whether this will permit the company to begin growing again remains to be seen. The Fed has restricted growth in Well’s balance sheet since 2017.

Author: Brent Nyitray

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

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