Vital Statistics:
Stocks are flattish this morning on no real news. Bonds and MBS are continuing to rally.
We have seen quite the rally in the 10 year over the past few days. There doesn’t seem to be much in the way of news driving it, unless you think tariff fears are causing it. That said, the first order effect of tariffs should be higher rates, not lower rates. Tariffs = less international trade, and since we run a trade deficit with everyone that translates into less demand for Treasuries. Plus tariffs mean rising prices and higher inflation. Should be negative for bonds.
One possibility is that the Fed might pause quantitative tightening ahead of the debt ceiling debate as a safety measure, and people are getting ahead of that. Might be too clever by half, but it is a possible explanation.
I think the global economy is weakening, and you are seeing lower yields in Europe. The Fed Funds futures now see two cuts this year as the most likely scenario. The Atlanta Fed GDP Now model now sees 2.3% GDP growth in Q1, a far cry from the 3.9% rate it saw in early Feb.
While German Bund yields are up marginally this morning, we are seeing lower yields on UK Gilts, Japanese Government Bonds and Chinese Government Bonds. I suspect US yields are kind of tagging along.
Home prices fell 0.1% MOM and rose 3.9% YOY, according to the Case-Shiller Home Price Index. “It has been five years since the Covid-19 outbreak took hold of the global economy, sparking unprecedented volatility, massive fiscal and monetary stimulus, and a housing market that responded to national migratory changes in how we work and where we live,” says Brian D. Luke, CFA, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “National home prices have risen by 8.8% annually since 2020, led by markets in Florida, North Carolina, Southern California, and Arizona. While our National Index continues to trend above inflation, we are a few years removed from peak home price appreciation of 18.9% observed in 2021 and are seeing below-trend growth over the history of the index.”
MSAs like New York and Boston are doing the best right now, while MSAs like Tampa are down.
Home prices rose at a 4.5% annual rate in the fourth quarter, according to the FHFA House Price Index. “U.S. house prices grew at a slightly higher rate in the fourth quarter after three straight previous quarters of weaker appreciation,” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. “The price growth accelerated during the quarter as the inventory of homes for sale tightened even further.”
Again, the Northeast did the best, with Connecticut, New Jersey, Vermont, and Rhode Island leading the charge.
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