Morning Report: PIMCO is buying mortgages 11/13/16

Posted on October 13, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2116.0 -15.0
Eurostoxx Index 334.4 -4.0
Oil (WTI) 50.0 -0.1
US dollar index 88.4 0.1
10 Year Govt Bond Yield 1.75%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.54

Stocks are lower this morning after weak Chinese data. Bonds and MBS are up.

The FOMC minutes showed that September was a close call with respect to raising rates, and definitely set up the markets for a December rate hike. The Fed noted that third quarter GDP was stronger than the first half of the year, and the labor market is strengthening. The consensus for a December tightening doesn’t necessarily indicate that there is the same consensus for further rate hikes. Interestingly, the Fed views consumer spending as”growing strongly” when the actual data does not suggest much strength at all. Bottom line, it looks like we are getting a rate hike in December, and the November meeting will be a non-event. The Fed Funds futures are assigning a 68% probability of a December hike of 25 basis points.

Initial Jobless Claims fell to 245k last week, which is the lowest since the early 70s.  Consumer comfort increased last week as well.

Import prices rose 0.1% MOM and are down 1.1% YOY. Export prices rose 0.3% MOM and are down 1.5% YOY. Strategists are warning that the rise in the dollar is going to hit corporate profits.

PIMCO is getting into a defensive posture, buying mortgage backed securities and inflation-linked securities. Mortgage backed securities now account for 55% of the Total Return portfolio from 49% in August. Why mortgages? Think about what will happen to long term bonds as the Fed hikes rates. If long term bonds don’t really move all that much (in other words, the yield curve flattens) the yield on mortgage backed securities will be much better than the yield on Treasuries. If the long end of the curve increases in line with the increase in the Fed funds rate, PIMCO is betting that the decrease in prepayment speeds will offset (at least partially) the interest rate effect. You can see over the past 5 tightening cycles, the yield curve has flattened.

John Stumpf is out at Wells. COO Tim Sloan, will take over. While the scandal was in the retail banking are and not the mortgage division, there probably will be fallout there too.

Filed under: Economy, Morning Report |

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20 Responses

  1. Michigoose, on October 13, 2016 at 11:03 am said:

    Frist!

    Liked by 1 person

    Reply
  2. jnc4p, on October 13, 2016 at 11:35 am said:

    Second Rogue One trailer. Going with the cheesy father issues plot device again.

    Liked by 1 person

    Reply
    • novahockey, on October 13, 2016 at 2:48 pm said:

      they don’t have the stones for it, but having all the principals die as they gets the plans to the alliance would be a good story.

      Liked by 1 person

      Reply
      • jnc4p, on October 13, 2016 at 2:58 pm said:

        And the one off movies are ideal for that, but I wouldn’t put it past them to try and do another if the box office is good.

        Plus toy sales could be impacted.

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        • novahockey, on October 13, 2016 at 3:16 pm said:

          still, i’ll see in in the theater. likely more than once, as i’ll want to preview it before i take my son. i’m sure there’s nothing in there he can’t handle, and he loves star wars, but ….

          Like

    • Brent Nyitray, on October 13, 2016 at 1:15 pm said:

      “Gloves off, stick down, no warning, he challenged the Chiefs! Called us names!”

      And in keeping with the Slap Shot theme, when Hillary wins, I imagine the end of the championship game:

      “All right, come on, dummy, you won the game. Come on, pick up your trophy. Here ya go, ya bum.”

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  5. jnc4p, on October 13, 2016 at 1:18 pm said:

    Scott Adams can’t admit he was wrong:

    “The Era of Women

    Posted October 13th, 2016

    If the latest groping/kissing allegations against Trump hold up – and I assume they will, based on quantity if not credibility – it won’t matter what Wikileaks says about Clinton. She will win easily.

    If Clinton wins, you’ll wonder if this invalidates the Master Persuader Hypothesis. The short answer is no, because the concept doesn’t account for unknowns of this magnitude. If a meteor had struck Trump a day before election day, it wouldn’t say much about his skill as a persuader. The Master Persuasion Hypothesis worked splendidly until the double-whammy of the Access Hollywood tape and the “octopus” meteor. ”

    http://blog.dilbert.com/post/151737656851/the-era-of-women

    The allegations against Trump are the opposite of an “unknown”. It was totally foreseeable.

    Liked by 1 person

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    • ScottC, on October 13, 2016 at 1:34 pm said:

      jnc:

      The allegations against Trump are the opposite of an “unknown”. It was totally foreseeable.

      Exactly. That is actually why I find it amusing that the tape/allegations are having a significant effect on Trump’s numbers. Who could possibly be surprised to find out that Trump is a Clintonesque cad?

      Liked by 1 person

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    • Kevin S. Willis, on October 14, 2016 at 12:47 am said:

      @jnc4p: “The allegations against Trump are the opposite of an “unknown”. It was totally foreseeable.”

      The fact that all of our leaders in Washington are acting shocked and appalled that Trump is a creepy groper (“why, I never!”) doesn’t really feel me with warm fuzzies for any of the people we’ve sent to Washington. These are our leaders? Those who will navigate the nation through the storms of the 21st century? Apparently unable to see big, flashing lights a few feet in front of their faces?

      Yay, DC politics!

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  6. ScottC, on October 14, 2016 at 7:13 am said:

    James Taranto highlighted this tweet from someone named Polimath. It is exactly right:

    http://www.wsj.com/articles/boiled-octopus-1476379341

    To my liberal friends: I know you think this is paranoid & conspiratorial but let me try to paint for you how it feels to be on the right.

    For a year, we’ve been saying “the press has massive dirt on Trump but they won’t release it until after the nomination.” Every anti-Trump person said this over and over: “They have so much dirt on him, they’re not telling you what they have” and we got mocked. Press people scoffed: “hey if we had a dirty Trump story, we’d publish it before the nom.” “We’re doing our job, your voters are just dumb.”

    The more realistic of us on the right suspected the press wasn’t “holding” a story so much as not really looking too hard into Trump. So Trump got to be on every cable channel non-stop, oppo was very thin, investigative pieces were weak sauce for months & months. . . .

    And now after a year of [our] saying “they have dirt on him,” after there is no chance he’ll step down, all this comes out. This *could* be a coincidence. It’s totally possible that the press discovered a decade old story JUST IN TIME for the election. In which case, I suppose we are lucky they didn’t discover it 4 weeks too late Whew. We dodged a bullet on that one, didn’t we? . . .

    The right MAY be wrong, but this fits EVERY theory about a dishonest, vicious, conniving press down to the last prediction & detail.

    Media efforts to convince people that it isn’t (and hasn’t been for decades) in the bag for Dems is nothing more than a massive exercise in gas-lighting.

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    • Michigoose, on October 14, 2016 at 9:12 am said:

      What I’ll never figure out is how his GOP rivals didn’t discover any of this during the primary season. Seriously? Were those guys really running that scared of the base or something??

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      • Let the mutherfuker burn!, on October 14, 2016 at 9:24 am said:

        They were runnning against each other with noe real belief, until it was too late that the base really preferred Trump. The obvious answer is not that they’re scared of the base (unfortunately) but that 16 of the 17 have little understanding of the political wants of a significant portion of the Republican base.

        Liked by 1 person

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      • ScottC, on October 14, 2016 at 9:45 am said:

        Mich:

        What I’ll never figure out is how his GOP rivals didn’t discover any of this during the primary season.

        The tape was owned by an NBC affiliated organization. How would anyone in the GOP have gotten access to it?

        Plus, of course, the GOP is still dependent upon the media to get such information out into the public domain. Most of the media was in the Trump camp (for various reasons) during the primaries, and so I imagine wasn’t inclined to aid any of the other candidates in making any damaging info a high profile issue.

        But I’ll say what I said yesterday. None of this can possibly be surprising or unexpected for anyone who has paid even the slightest attention to Trump over the years.

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        • jnc4p, on October 14, 2016 at 10:10 am said:

          There was a plethora of stuff in the public domain, starting with the Howard Stern shows.

          Only explanation I’ve seen that makes any sense is that they held back because:

          1. They thought that Trump would self destruct on his own so they were more focused on the other candidates.

          2. Going after him too hard would alienate his base which included a chunk of people who normally didn’t vote for Republican candidates and they were all positioning to pick those up afterwards.

          Why they didn’t change tactics after Super Tuesday though is still a mystery. Cruz should have been able to use this material to good effect.

          Like

        • ScottC, on October 14, 2016 at 10:35 am said:

          jnc:

          I am sure there is some truth to both of those reasons. But regardless, I still think that, in order for this kind of information to gain traction with the non-political but voting public, the cooperation of the media is required, and that cooperation didn’t exist until now. As a good demonstration, just look at the wikileaks stuff on Hillary. There is all kinds of stuff that is now in the public domain, but unless you are a political junky following internet blogs, you don’t know anything about it, because the media isn’t focusing on it at all.

          Like

    • Brent Nyitray, on October 14, 2016 at 9:45 am said:

      Don’t forget the refusal to acknowledge anything negative about hillary from Wikileaks..

      The only good to come out of this whole thing is that nobody on the right believes the media any more (at least on politics)… I hope the whole lot of them goes bankrupt.. They deserve it.

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