Vital Statistics:
| Last | Change | |
| S&P futures | 3555 | 22.6 |
| Oil (WTI) | 40.83 | 0.41 |
| 10 year government bond yield | 0.88% | |
| 30 year fixed rate mortgage | 2.9% |
Stocks are higher this morning despite a rise in COVID cases. Bonds and MBS are up.
Inflation remains muted at the wholesale level, with the producer price index up 0.3% MOM and 0.5% YOY. Even if you strip out the commodity and trade-related components it only rose 0.2% MOM and 0.8% YOY.
The bond market is starting to claw back some of its vaccine-related losses. The trader in me doesn’t sense that the path of least resistance has changed from lower rates to higher rates, at least not yet. The last time the Fed had rates at 0%, the 10 year was trading at 1.5% – 2%, so it won’t necessarily take a rate hike to get them back up to those levels. If the 10-year bond yield has indeed bottomed out, that would mark the end of the Great 40-year bond bull market in the US, which began in the early 80s as Paul Volcker broke the back of 1970s inflation. The last bond bear market lasted from sometime in the 1930s until 1980. Interest rate cycles are long. The first rule of bubbles is that they go on further and longer than you would ever expect.
Mortgage Credit eased in October, according to the MBA’s Mortgage Credit Availability Index. “Credit availability increased in October for the first time since July,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The ongoing economic recovery and improving labor market led to a rise in credit supply for various loan types. There was an overall increase in credit availability for low credit score and higher LTV loans, with conventional credit supply increasing 5.1 percent and government credit staying essentially flat.” That said, we still have a long way to go to get back to pre-COVID-19 levels.
The Daily Tearsheet 