Michael Flynn pleads guilty and markets go crazy

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Published Date 12/1/2017

Back in the range for the 10 yr; the yield on the note this afternoon 2.37% down 5 bps from yesterday’s increase of 5 bps. MBS prices +17 bps today, the FNMA 3.5 30 yr coupon yesterday down 20 bps. Volatility is currently at high levels compared to the low levels we have had over the last five months.

The Republicans appear now to have the necessary votes to pass the Senate’s version of the tax bill; yesterday and early this morning there were four Senators with issues on the votes, increased deficits and concerns over the ObamaCare health care bill that would remove the requirements that people have to have insurance or pay a penalty on their tax returns. These issues seem to be pushed off the table allowing a vote maybe later today. This is the preliminary round to be followed by the main event when the two bills meet to iron out the differences between the House and Senate versions.

Fireworks this morning when the FBI reported that Mike Flynn former national security adviser, lied to the FBI and he has admitted it. According to the news, Flynn copped a plea and will testify that Pres. Trump directed him to contact Russia during the campaign. He plead guilty Friday morning to lying to the Federal Bureau of Investigations about his communications with the Russian ambassador before Mr. Trump took office. The headlines are out, but the story is still unfolding. The reaction in markets was swift, sending the DJIA down 368 points when the news hit, the 10 yr note yield dropped to 2.36% from 2.41% before the report. MBS prices prior to the news were trading unchanged from yesterday then followed the 10 yr prices higher (yields lower).

By this afternoon stocks did end lower from yesterday’s strong move higher but well off the lows.

The weekend news should be lively about both the tax cuts and the Flynn investigation.

Next Week: tax cuts will remain key but also the unraveling of the Mike Flynn/FBI situation and November employment data. Monday, October factory orders. Tuesday, International trade deficit, Nov ISM services sector index. Wednesday, Nov ADP private jobs; Q3 productivity and unit labor costs (revisions from last month). Thursday Weekly claims. Friday, Nov employment data, U. of Michigan final Nov consumer sentiment index, Oct wholesale inventories.

This week was noted for its volatility in stocks and interest rates. The rate markets still within their very marrow yield and price ranges when viewed on a weekly basis. 10 yr +3 bps, MBS prices -7 bps. Good to look at markets on a weekly basis as well as having to navigate the daily swings. Yesterday the stock market fired up sending the 10 yr to 2.42% but today back within the 8 point range 2.32%/2.40% that has for the high majority of time defined long-term rates since early October with 30 yr mortgage rates generally unchanged in that time.

Source: TBWS

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