Morning Report – Bonds rally as oil tanks 12/1/14

Markets are lower this morning on overseas weakness as the Chinese PMI came in weaker than expected. Bonds and MBS are flat.

The story of the last few days has been the precipitous decline in the price of oil, which is collapsing at a faster rate than it did in the 2008 crisis. The fracking boom in the US is playing a big role here, along with OPEC’s decision to to maintain output. This is going to have major implications for the US economy and also foreign policy (mainly good).

Chart: WTI Crude 2007 – Present:

As oil falls, so do bond yields. Last week, the 10 year dropped 15 basis points to close out at 2.164%. There are lots of reasons to be skeptical of Friday’s closing print – namely (a) low volume as many desks were staffed with skeleton crews and (b) end-of-month position squaring and window-dressing. That said, bonds are holding onto gains first thing this morning. LOs, if you had some borrowers that wanted to refi and missed their chance, wake them up. Due to the holidays, they probably don’t know what has been happening in bonds..

Chart: 10 year bond yield.

Note that while bond yields fell 15 basis points, mortgage rates fell by only 6 basis points or so. We saw this the last time yields fell quickly – mortgage rates didn’t follow the move down all that much until it became obvious that the move wasn’t a fluke. Note TBAs picked up about half a point last week.

We have some important economic data this week, with the ISM, Construction Spending, and the Employment Situation Report. We will also get same store sales from the retailers, which should provide some insight into Black Friday. Retailers should benefit from the gift of low gas prices, however it looks like Black Friday was a disappointment this year.

The WSJ is reporting that some of the bigger lenders (like Wells and SunTrust) are preparing to ease lending standards in response to the new R&W guidelines out of the GSEs.

8 Responses

  1. What do you think of the easing on home mortgages?


  2. His Badgercare is a deal breaker for me but it might be outweighed by his not having a college degree.


  3. “What do you think of the easing on home mortgages?”

    I think it will be marginal at best. Banks tend to have overlays (in other words tighter standards than Fannie Mae) in order to give them some margin of error if there are problems later on. This was intended to stop the banks from doing that.


  4. Read Troll’s link to reason, came across this:

    It’s interesting that fairly liberal comedians don’t want to perform at colleges because they are too politically correct (also that Rock referred to that as too “conservative”, which is a misnomer I think, but I get what he’s saying). But as with most things that grow unchecked, even very liberal professors are ending up hoisted by their own petards when being inadequately class-conscious or inadequately advocating for identity politics can get you canned. Which I think most classical liberals would agree is a bad turn of events.

    Gone are the days of white guys complaining that black people can cal each other the “n”-word with impunity but a caucasian would get pilloried for it. Now black people cannot refer to another black person as “that black guy over there” . . . at least on certain campuses.


  5. markinaustin: “Prevailing opinion there is that Wilson should have been indicted regardless of the evidence, it seems.”

    I think the prevailing opinion there would be that any officer that shoots anybody should be indicted, period. Unless the shooting victim was a Tea Party member, I guess.


    • More interesting food for thought for those who have not decided they know everything about this case they saw bandied about on 24-7 cable:

      Seems there is a phony pathologist on the loose, who may or may not know what he is talking about.



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