Morning Report: 75% of the US Treasury market is under water

Vital Statistics:

Last Change
S&P futures 2773.25 10.1
Eurostoxx index 383.72 1.4
Oil (WTI) 74.01 0.21
10 Year Government Bond Yield 2.86%
30 Year fixed rate mortgage 4.50%

Stocks are higher this morning as trade war fears recede. Bonds and MBS are down.

Earnings season begins this week, with a bunch of the big banks reporting on Friday.

The biggest econ data will be the PPI and CPI on Wednesday and Thursday. For the most part it should be a quiet week.

Leandra English has resigned from the CFPB. She was the Deputy Director for Richard Cordray, and believed she should have been given the job instead of Mick Mulvaney. She sued in Court and lost. Now that Kathy Kraninger has been nominated, she is gone.

Donald Trump will announce his SCOTUS pick at 9:00 pm tonight. The favorites are Brett Kavanaugh and Thomas Hardiman.

Interesting stat: 75% of the US Treasury market trades under par. This is the highest percent ever recorded (we started measuring this in the 80s). In the past, it generally peaked around 50%, which happened at the end of Fed tightening cycles and was usually a buying opportunity. I would note that these were in the context of a secular bull market in bonds. In secular bull markets, you buy the dip. We are now in a secular bear market in bonds and that changes the dynamic.

100 years of interest rates

The REO-to-Rental Trade was a big winner over the past several years. Hedge funds and pension funds bought foreclosed properties for pennies on the dollar, fixed them up and rented them out, earning high single digit returns. As home prices rise, you would think these people will start ringing the register. Turns out they are doubling down. Professional investors are buying up homes in urban areas with good schools. This is making things even tougher for the first time homebuyer who is struggling to find a starter homes. That said, it isn’t a ridiculous number – last year major investors bought 29,000 homes, which is a drop in the bucket compared to total existing home sales of 5.45 million.