Morning Report: Bond yields rise on a weak 10 year auction 7/13/16

Markets are higher this morning on no real news. Bonds and MBS are up.

Bond yields rose dramatically yesterday on hopes of future stimulus. The 10 year was trading around 1.52% yesterday after lower than expected demand at a Treasury auction. Yesterday, Germany auctioned 10 year bunds at a yield of -.05%. Yields worldwide are heading lower this morning. Note that MBS are still largely ignoring the volatility, although we did see some reprices yesterday.

Mortgage Applications rose 7.2% last week according to the MBA. Purchases were flat, while the refi index rose 11%. Note this was a short holiday week and we still saw a big increase in refis.

Import prices rose 0.2% MOM and are down 4.8% YOY. The strength in the US dollar (or as Bill Gross says, the cleanest dirty shirt) is driving the drop. Yet another reason why the Fed can’t seem to find inflation anywhere.

Bernie Sanders made it official yesterday and endorsed Hillary Clinton. Meanwhile, Mitt Romney and Jeb Bush are considering backing Libertarian Gary Johnson. The GOP convention is this weekend, and promises to be a spectacle between the #NeverTrump crowd and the expected protests from the left. Here is how the #NeverTrump crowd can block his nomination.

The Atlanta Fed is now estimating that US GDP growth increased at a 2.3% pace in the second quarter. This is a drop of 0.1% from their estimate a week ago.

James Bullard believes that Brexit will have almost no US impact. Loretta Mester said more or less the same thing as well. The main effect will probably be a stronger dollar and lower interest rates in the US.

One of the biggest effects of the financial crisis may be rolling off: Those who had short sales and foreclosures in 2009 – 2010 are reaching the end of the 7 year no mortgage period and become eligible to borrow again.

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