Morning Report: Home values more than 1.5x GDP 12/29/17

Vital Statistics:

Last Change
S&P Futures 2694.8 9.0
Eurostoxx Index 389.7 0.2
Oil (WTI) 60.1 0.2
US dollar index 86.0 -0.3
10 Year Govt Bond Yield 2.43%
Current Coupon Fannie Mae TBA 102.375
Current Coupon Ginnie Mae TBA 103.25
30 Year Fixed Rate Mortgage 3.97

Stocks are up on the last trading day of the year. Bonds and MBS are flat.

Yet another slow news day.

Should be a dull day for bonds as the market closes at 2:00 pm EST. There is no economic data or Fed-speak either.

Oil has topped $60 a barrel, which is higher than it has been for the past 3 years, but is pretty low in the grand scheme of things. It is something to watch, however as oil prices are a drag on the economy when they get too high. The US has so much capacity however that whenever prices rise, additional supply can come on line in a hurry. The US is pretty much insulated from OPEC any more.

What is the value of all US homes in the US? Almost $32 trillion, or more than 1.5x US GDP.  Over the past year, they have increased in value by almost $2 trillion. This increase is more than 3x the rate of inflation.

As inflation rises, we should expect to see US bond yields rise. That said, global sovereign bond markets do influence each other, and the spread between US Treasuries and German Bunds has risen to more than 2%. Relative value trading (i.e. investors swapping out of more expensive German bonds into cheaper US Treasuries) should act as a bit of a drag on US interest rates. The bigger question will be whether global growth pulls up Euro yields or whether the US yield curve continues to flatten.

See you all in the new year!

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