Mortgage rates flat as rates around the world slip

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Published Date 5/29/2019

Global sovereign rates continue to fall. This morning the 10-yr note was down to 2.22%, down 10 bps from last Friday. As we have been noting, there is no demand in the markets for MBSs or any other long term debt. MBS prices in early activity this morning remained unchanged from yesterday and essentially unchanged from last Friday. The yield curve continues to invert, and investors are increasingly talking of a recession on the way. We doubt that, but it is finally sinking in that economic growth in the US and globally is slowing. Yesterday JP Morgan Chase’s Jamie Dimon was once again talking up the outlook, but his recent track record isn’t the best.

Trade and political issues in Europe with the EU are facing more hurdles as anti-EU forces are momentarily increasing momentum. Yesterday Italy debt increased more than allowed by the EU rules.

Mortgage rates not moving; weekly MBA mortgage applications released this morning were down 3.3%, purchases, -1.0% with refinances down 6.0%, reflecting flat mortgage rates over the last month.

The yield curve continues to invert, a historical condition that in the past has signaled a coming recession. Generally, markets are not expecting a recession (2 consecutive quarters of declining GDP). In the past central banks were not as controlling as they have been over the last 11 years after the collapse in debt markets in 2008. Nevertheless, whether real or imagined markets are paying a lot of attention; the 3-month treasury bill is at 2.36%, and the 10-yr is at 2.23%. Yields from 2s to 7s are now at the lower end of the fed funds rate at 2.25%. As equities fall and yields fall look for increasing thoughts that the Fed may lower rates; too soon to have an opinion here.

As we mentioned, global sovereign rates are crumbling; the Germany 10-yr lost -0.1% and Japan’s 10-yr was down by -0.9%. The UK’s 10-yr is at 0.913%. The current condition; take no risk, place money into safety and the US has the highest rates apart than China at 3.33%, although China debt markets don’t attract much attention.

Nothing new on trade this morning; President Trump is not in a hurry to get a deal according to his tweets on Monday. He controls market moods with his tweets, and if he tweets today that a trade deal with China is moving along well, you can bet it would flip sentiment momentarily. Thing is, a trade deal with China isn’t likely anytime soon, maybe not this year.

At 9:30 am the DJIA opened down -180, the NASDAQ dropped -45, and the S&P was down by -16. The 10-yr stood at 2.23%, down -3 bps.

At 1:00 pm this afternoon the Treasury will sell $32B of 7-yr notes; the 2 and 5 yr auctions yesterday were mixed. The 2 saw very strong demand, and the 5 is ok but not as strong.

Source: TBWS

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