Suggestion: Mortgage Bond prices continue to trade near the 2017 highs, while mortgage rates remain near seven-month lows. Carefully floating is recommended.
Overview: Yesterday, oil prices hit lows not seen since August 2016 and have lost 20% since topping out in February, this despite OPEC’s vow to cut production and balance the market. The S&P energy index has declined 15% this year. Lower oil prices could affect inflation.
The Fed’s favorite inflation gauge, the Core Personal Consumption Expenditure on an annual basis, fell to 1.5% in April, well below the Fed's target range of 2%. Oil is a major staple of the economy and is used in fueling transportation, heating homes, making plastics and many other consumer products. If oil prices decline, the cost to the end consumer drops, thus lower inflation and vice versa.
In the current low inflation environment, it could be tough for the Fed to raise rates anytime soon. Currently, there is little chance of a hike to the short-term Fed Funds Rate in July, and just a 13% chance in September. Yesterday, Philadelphia Fed President Harker (voter) said he could see the Fed’s balance sheet unwinding beginning in September, but not if inflation weakens. Mr. Harker went on to say that if the balance sheet unwinding were to begin, rate increases would pause. The Fed's balance sheet is made up of Treasury and Mortgage Backed Securities and is valued at $4.5 trillion.
Below is the news when it happened and the market’s reaction. For a full view of the day start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time. When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Good News and Good News is Bad news.
Commentary at the Close: MBS traded in a tight range once again today near critical technical levels, while the closely watched S&P 500 closed slightly lower. There were no major economic reports released today, aside from the in line claims data. The 3.5% Fannie Mae 30-yr coupon rose 6bp to 103.19. The Dow lost 12.74 points to 21,397.29, the S&P 500 fell 1.11 points to 2,434.50, while the NASDAQ was up a meager 2.73 points to 6,236.68. WTI oil closed at $42.74/barrel, +$0.21. 10-yr T Note yield 2.15%. Tomorrow's economic data is limited to May New Home Sales.
|Thu, Jun 22 3:44 PM Stocks give up gains heading into the close of trading.|
|Thu, Jun 22 3:33 PM Senate GOP releases text of health care bill; Bloomberg reports that at least thee GOP Senators will vote against this bill, potentially killing it.|
|Thu, Jun 22 2:03 PM Mortgage delinquencies declined 7% in May compared with April, a partial recovery from the 13% increase of the previous month.|
|Thu, Jun 22 1:15 PM At midday, MBS trade near unchanged. Stocks holding minimal gains. 10-yr yield 2.15%.|
|Thu, Jun 22 11:14 AM MBS fall to session lows as Stocks trade into positive territory.|
|Thu, Jun 22 11:12 AM Stocks push into positive territory as oil prices rebound.|
|Thu, Jun 22 11:07 AM Next week, the Treasury will sell $26B 2-yr Notes on Monday, $34B 5-yr Notes on Tuesday and $28B 7-yr Notes on Wednesday.|
|Thu, Jun 22 10:04 AM Freddie Mac reports that the 30-yr fixed-rate mortgage is 3.90% this week, down from last week's 3.91% with 0.5 points.|
|Thu, Jun 22 8:52 AM Ellie Mae reports that the share of purchase originations hits a 6-year high in May|
|Thu, Jun 22 8:31 AM Weekly Initial Jobless Claims +3K to 241K, in line.|
|Thu, Jun 22 8:16 AM U.S. dollar index 97.19, unchanged.|
|Thu, Jun 22 8:12 AM 10-yr T Note yield at 2.15%, unchanged.|
|Thu, Jun 22 8:09 AM Oil is edging up from lows not seen since August 2016. After topping out in February, oil prices have fallen 20%, despite OPEC vowing to make production cuts. WTI oil at $42.74/barrel, +$0.21.|
|Thu, Jun 22 8:08 AM MBS open near unchanged while S&P futures hug the flat line.|
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