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Morning Report: Bond yields soar again


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Stocks are flat this morning on no real news. Bonds and MBS are down again. Jerome Powell will speak after the market closes.

It is looking more and more like we will get some sort of government shutdown soon. The last time we had a government shutdown, the IRS wasn’t sending out tax transcripts, which delayed some closings.

Global sovereign yields are shooting higher this morning, led by the UK, with an 18 basis point pickup. The German Bund yield is up 12 basis points despite a better-than-expected inflation report. Rising energy prices aren’t helping things, and all of this is translating into relentlessly higher Treasury yields and mortgage rates.

Bank earnings in a couple weeks will be interesting to say the least.

Gross Domestic Product rose 2.1% in the second quarter, in the third revision. Consumption was revised downward, while non-residential fixed investment was revised upward. The PCE Price index rose 2.5% in the second quarter, while the PCE Price Index ex-food and energy rose 3.7%. Separately, initial jobless claims fell to 204k.

Chicago Fed President Austan Goolsbee said “The Fed has the chance to achieve something quite rare in the history of central banks — to defeat inflation without tanking the economy.” He went on further to say: “The unwinding of supply shocks, the composition of demand returning to more stable patterns, and Fed credibility are central to why I think it might be possible today to reduce inflation while avoiding a deep recession.”

He also said that he is ready to change the focus of the Fed from “how high” the Fed Funds rate goes to “how long” it stays restrictive. Goolsbee is a voting member.

Pending Home Sales fell 7.1% in August, according to the National Association of Realtors. Year-over-year, transactions are down 18.7%. “Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers,” said Lawrence Yun, NAR chief economist. “Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets…The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy. There is no need to raise interest rates. “Moreover, the government shutdown will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance,” said Yun.

How buydowns can help improve the affordability problem.

Weekly Initial Unemployment Claims Increase to 204,000

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