Morning Report: US rates held down by creeping Eurosclerosis

Vital Statistics:


Last Change
S&P futures 2859 -7
Oil (WTI) 62.65 -0.48
10 year government bond yield 2.43%
30 year fixed rate mortgage 4.41%


Stocks are lower this morning on no real news. Bonds and MBS are flat.


The MBA Secondary Conference was held in NYC on Monday and Tuesday, and it seemed (at least to me) to be much more sparsely attended than in prior years. The most obvious example was the HUB or the conference floor, where there were about half the number of booths. You could see it in the major sessions, where the seats were maybe 25% taken. Of course the secondary conference is largely an off-site event where people go to the various hotels around Times Square for meetings, but it definitely looks like traffic was down this year.


The big topic was growth and how to achieve it. Generally speaking most originators were focusing on non-QM as well as renovation loans as the best way to drive growth. Mergers were also mentioned as a way to increase volume. Mohammed El-Arian forecasted that rates will go nowhere in the near future, anchored by negative rates in Europe. The German Bund is trading at a negative yield of 8 basis points (in other words you have to pay for the privilege of lending to the German government), and many money managers prefer to invest in positive-yielding US Treasuries and roll the dice on the currency risk than to lock in a sure loss in German Bunds. He also doesn’t see any sort of recession for at least the next two years unless a massive trade war breaks out internationally.  You can see the creeping Eurosclerosis in the chart of the Bund yield below:


german bund


The Trump Administration is vetting Judy Shelton to fill a seat on the Federal Reserve Board. She is currently on the European Bank for Reconstruction and Development, which means she has already been through part of the confirmation process. She is in favor of keeping interest rates low, and has criticized the Fed’s methodology for setting the Fed Funds rate.


Existing home sales fell in April, according to NAR. They were down 4.4% from a year ago to a seasonally adjusted annual rate of 5.19 million. The median home price rose to 267,300 which is a 3.6% increase from a year ago. Inventory rose as well, to 1.83 million units, which represents a 4.2 month supply. Historically, 6 months would have been considered a balanced market, and we also have a mismatch between price points, where there is a glut of luxury properties and a shortage of entry-level homes. Days on market declined however to 24 days. “I think the market had a bit of a slow start in the Fall, but Realtors® all over the country have been telling me that April was a nice rebound. We’re hopeful and expect that this will continue heading into the summer,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota and broker at Edina Realty. “Homes over the last month sold quickly, which is not only a win-win for buyers and sellers, but it’s also great for the real estate industry.”


The mismatch between supply and demand is translating into more boomer empty-nesters staying in their homes. Trulia believes this is a matter of choice, but it may simply be the fact that there is not much demand for those 3,500 square foot homes. The demand is at the lower sizes and price points.


Mortgage applications rose 2.4% last week as purchases fell 2.4% and refis rose 8.3%. The average contract interest rate fell 7 basis points to 4.33%.

15 Responses

  1. If your policy ideas don’t make sense under Econ 101, the obvious answer is to stop teaching Econ 101.


    • the left throws around the term “market failure” way too much, and it often means that government intervention in the market didn’t go the way they thought it should.


      • How can this not be construed as insulting?

        “He also gives Mankiw credit for moving the curve of Ec 10 to match the curves of other large Harvard classes, based on research showing that unnecessarily tough grading of economics classes disproportionately discourages women from taking them.”


      • “the left throws around the term “market failure” way too much, and it often means that government intervention in the market didn’t go the way they thought it should.”

        Or that the market didn’t produce the social results that they wanted, even if it worked just fine.

        Liked by 1 person

    • Of the 12 papers students are required to read, 11 were released in 2010 or after. Half of the assigned papers were released in 2017 or 2018. Chetty co-authored a third of them.

      Self-serving, much?

      The picture with Chetty’s slide explaining what would be different if income inequality had not increased since 1980 is so anti-empirical I find it kind of astounding. The article to that point talks about how Chetty’s approach is all empiricism rather than high-minded theory, but that slide is just magical thinking. The idea that if something had constrained income inequality specifically that everybody would be making 37% more money now is magical, irrational thinking. It’s the fantasy that nothing else would change in a system that successfully constricted income inequality.


      • What I found telling and disturbing is the premise that basic micro supply and demand is inherently political in that it “promotes” markets and therefore students would be better off skipping it in favor of the new econ rather than everyone have the same foundation. It’s the A101 approach to econ.

        And of course the progressives believe the premise is validated because more women and minorities are enrolling in the new econ because of it’s links to social justice arguments.

        It reminds me of English classes that deconstruct the Western canon without actually requiring that the students be taught the works that they are deconstructing first.

        That’s a lot of things, but what it’s not is a new approach that makes econ more of a science. It’s just making it more political by introducing a results oriented curriculum.

        “Let’s skip all the intro and get straight to how we redistribute income to achieve justice and equality”

        Liked by 1 person

        • reminds me of Pikkety… His analysis that capital will dwarf labor is based on his theory of long-run GDP growth, which is dependent on his accurate measurement of GDP in 900 AD.

          Liked by 1 person

        • How can this be referred to in terms of empiricism? That boggles my mind. It feels very “facts are whatever we say they are, so long as we can massage the data sufficiently to make a threadbare assertion”. At least that’s what it looks like, based on that article. I agree it’s about “how to redistribute income and achieve social justice NOW” but the whole assertion it’s all about scientific empiricism and leveraging big-data . . . there seems to be a disconnect to me.


  2. This should be fun:

    “The Premise of Joe Biden’s Campaign Is That Every Left-Wing Criticism of the Democratic Party Since 2008 Has Been Wrong

    By Ben Mathis-Lilley
    May 22, 2019”


  3. I find this post and comments pretty amusing.


  4. Heh


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