Morning Report: FOMC minutes mildly bearish for bonds 2/22/18

Vital Statistics:

Last Change
S&P Futures 2704.0 5.3
Eurostoxx Index 378.5 -2.6
Oil (WTI) 61.8 0.1
US dollar index 83.8 -0.1
10 Year Govt Bond Yield 2.92%
Current Coupon Fannie Mae TBA 103.591
Current Coupon Ginnie Mae TBA 103.688
30 Year Fixed Rate Mortgage 4.4

Stocks are higher this morning on no real news. Bonds and MBS are down.

The FOMC minutes were surprisingly upbeat on the economy, which pushed up bond yields yesterday afternoon. The part that got everyone’s attention:

“A number of participants indicated that they had marked up their forecasts for economic growth in the near term relative to those made for the December meeting in light of the strength of recent data on economic activity in the United States and abroad, continued accommodative financial conditions, and information suggesting that the effects of recently enacted tax changes—while still uncertain—might be somewhat larger in the near term than previously thought. Several others suggested that the upside risks to the near-term outlook for economic activity may have increased. A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.” (emphasis mine)

Separately, Bullard and Quarles cited the strength in the economy and the need to continue to raise interest rates.

This language caused some strategists to increase their forecast to 4 hikes this year from 3. Surprisingly, the Fed Funds futures reacted in an opposite manner on the minutes, but reversed course later to become unchanged on the day. The 10 year treasury sold off throughout the day, and hit 2.94% in the late afternoon.

Part of the movement in bonds is being driven by Europe. European governments have been increasing their bond issuance at the same time the European Central Bank is decreasing its demand for paper. The market for government bonds is a global market, and if there is excess supply, it will hit interest rates across the board. This is why you will sometimes see bonds move lower without any particular catalyst. The catalyst may exist, however it is something overseas that the US business press is either ignoring or covering lightly.

Initial Jobless Claims fell to 222,000 last week. We remain at lows not seen since the Vietnam War and the days of the military draft. Still have yet to see widespread wage inflation however. Until that happens, the Fed will go slowly.

The Index of Leading Economic Indicators improved in January, increasing 1%. It will be interesting to see if February’s number is affected by the recent stock market volatility.

Interesting map from GeoFred which shows the economic growth in different parts of the country. The thing that jumps out at me is how bad the NY-NJ-CT area is. I guess the fact that that area is somewhat levered to the financial industry is an issue, although I wonder how much of it is due to people who have been fleeing high taxes, though if that was the case you would expect to see it in CA as well and you don’t.

17 Responses

  1. …though if that was the case you would expect to see it in CA as well and you don’t.

    Climate. People love CA for the climate no matter what else. Beaches and mountains.

    Most are not like my dad was about CA: “earthquakes, mudslides, fires, lettuce eaters, traffic jams, high taxes, [etc., etc., etc.].”

    Liked by 1 person

  2. And here is an idea from CA whose time has come:

    Liked by 1 person

  3. I actually admire DailyKos’s respect for allowing opposite opinions on its front page.

    “It’s not the shooter, it’s the guns”


    “It’s the shooter, wingnut!”

    Liked by 1 person

  4. no entitlement reform this year. if you hear otherwise, ignore it. it’s misinformed fearmongering

    Liked by 1 person

  5. Can Trump ban bump stocks? BHO thought he could not.

    Liked by 1 person

  6. USA > Canada

    Liked by 1 person

  7. Context (top cause of death among teenagers):

    I get that school shootings are dramatic and visible, but the entire idea that everything needs to be put on hold until school shootings are “fixed”, probably by a law that will accomplish nothing towards the goal, seems typically without context. Primary cause of death among teenagers is by far and away motor vehicle death. Break that down into smaller causes (such as teenager driving, for example, teenager with occupants in car) and you’re still way ahead of school shootings in terms of cause of actual death.

    Also, I’m a heartless bastard and the only thing I can think of is that most of the kids would have died a long time ago in the pre-antibiotic age. So people should be more thankful.

    Finally, get the kids off all the ADHD medication and SSRIs. Things that can cause suicidal ideation can just as easily cause homicidal ideation.

    I have no problem with more gun laws myself. Have no problem with a federal registration database. Philosophically, I’ve got no real objection to having a UK-style “almost impossible to get a gun” legal framework. But the fantasy that it’s going to do anything more than make the smallest dent in mass shootings is absurd.


    • I think that absent a ban and confiscation, which is the real goal, the gun control side of this problem isn’t going to do much.


      • Certainly not as long as the media continues to fulfill the desire for infamy that the shooters crave.

        The VA Tech shooter having a media pack ready to be mailed during the shooting should have been a reality check for them on what helps to drive this.


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