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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:00 pm EST – Our benchmark FNMA MBS 6.00 June Coupon is down -15 BPS with 60 minutes left to trade.
Domestic Flavor:
Rosie the Riveter: April Factory Orders were lighter than expected, 0.4% vs est of 0.5% and more than half of March’s pace of 0.9%.
Services: The May national ISM Non Manufacturing PMI (2/3 of our economy) stayed in expansionary territory but just barely at 50.03 vs est of a much stronger 51.5. New Orders Fell and so did the Employment Index (which was yet another 3rd party jobs report that was contrary to the numbers that the BLS is pumping out). Prices Paid fell as well.
On Deck for Tomorrow: Reserve Bank of Australia Interest Rate Decision
Over the weekend US interest rates edged higher from Friday following last Friday’s strong employment report. This morning at 8:00 am est the 10 yr note yield traded at 3.76% +7 bps. At 9:30 am 3.75% +6 bps, MBS prices -12 bps. At 10:00 am the May ISM services sector index; the index at 50.3 from 51.9 in April; prices paid 56.2 from 59.6; employment 49.2 from 50.8; new orders 52.9 from 56.. Every sector weaker than in April, the service industry has been the sector so far that has held steady, now it too is slowing. Wages declining, employment under 50 now in contraction, new orders losing steam. The initial rection swung the rate markets from increasing to declining, by 10:30 am the 10 yr note 3.67% -2 bps. MBS prices down 12 bps edged to unchanged but there was no follow-through even while the 10 traded the rest of the day unchanged to -2 bps.
The softer service sector on the plus side for the Fed; Friday’s May employment report on the negative side, stronger than estimates. Still expect the Fed will not move rates next week, the outlook for the July meeting between now and the 26th of July will keep rates choppy. A week ago 30 yr mortgage rates exceeded 7.0%, today 6.89% after slipping as low as 6.73%. The Fed and other central banks targeting 2.0% inflation and saying they would continue to raise rates to accomplish that. We are beginning to believe central banks are tilting at those windmills. Our Fed is trying to lower inflation the way the Fed attacked inflation back in the early 80s, increasing rates to do so; inflation has waned, but we question inflation will decline to 2.0%, now 4.6%. Before this saga ends in a year or two the accepted inflation target by central banks will be increased.
For those that believe low rates are a given and we are now being penalized with mortgage rates at 6.50% to 7.0%; mortgage rates overall from 1965 to the pandemic were in that range. Time to accept that 3.0% 30 yr mortgages are over. The Wall Street mania that between 2000 and 2008 that created low rates with teaser rates and no underwriting, no income verifications, small down payments won’t happen again until the mess is forgotten, 10 to 20 yrs. It will require time to accept this new reality, rates won’t get back there and waiting may be a mistake.
There are no scheduled economic releases tomorrow, and the Fed is in lock down now; no Fedspeak until after next Wednesday.
