Morning Report: 10 year bond yield hits a 3 year low

Posted on August 5, 2019 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2886 -44.5
Oil (WTI) 54.43 -.84
10 year government bond yield 1.77%
30 year fixed rate mortgage 3.91%

 

Stocks are lower this morning on more trade war fears. Bonds and MBS are up.

 

Bond yields worldwide are down this morning, and many traders are watching the yuan / dollar exchange rate. Weakening the yuan is one of the arrows in China’s quiver to combat tariffs. A weaker yuan will make Chinese imports cheaper, which can offset the effect of tariffs. Globally, we see the German Bund with a negative 50 basis point handle, and the Japanese government bond pushing negative 20 basis points. If this continues, I think we are looking at another 25 basis point cut in September.

 

Trump tweeted about the yuan exchange rate this morning and called it “currency manipulation.” This is not an idle term – Treasury Secretary Steve Mnuchin has resisted calling China a currency manipulator, because it is a weighty accusation. Trump also asked if the Fed was “listening.” The Fed is not in the currency business – that is Treasury’s job – but he is putting additional pressure on the Fed to cut rates. If there is a silver lining in all this, it is that it means lower rates and that is good for the mortgage market. It also looks like some of the more expensive real estate markets on the West Coast are re-thinking their zoning laws, which could add some much-needed supply.

 

The week after the jobs report is invariably data-light, and this week is no exception. The biggest reports will be job openings on Tuesday and producer prices on Friday. Since we are no longer in a tightening cycle, the inflation data will not be a market mover. Note that the disappointing construction spending number is pulling down Q3 GDP estimates to the 1.6% – 1.9% range.

 

 

Filed under: Economy, Morning Report |

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8 Responses

  1. Michigoose, on August 5, 2019 at 11:38 am said:

    Possibly weird question for Brent and/or Scott:

    My boss is teaching an honors class this year on literature review. The class is school-wide, which means that she has several math and computer sciences students (don’t ask me how to explain how they got lumped in with natural sciences majors), and nine of them are majoring in “actuarial sciences”. Neither of us knows what this really means, or what the best journals in the field are. Can you give me some guidance?

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    • Brent Nyitray, on August 5, 2019 at 11:44 am said:

      actuarial typically refers to the sorts of calculations insurance companies do to price their policy. It would answer the question “how much should we charge a 60-year old overweight male for life insurance” or “how much should we charge to insure an oil tanker for liability for a spill?” It basically looks at probabilities of accidents / deaths etc and the expected losses.

      So maybe actuarial sciences = pricing / modeling of risk

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  2. Brent Nyitray, on August 5, 2019 at 11:40 am said:

    Interesting tidbit from one of my contacts in the mortgage industry:

    CFPB rumblings

    It was reported to me that since last June, the CFPB has been investigating a tiny Chicagoland mortgage lender for possible Fair Lending Violations. Recently, the DOJ opened its own investigation in the case leading some sources to conclude that the Bureau may be ready to take legal action. If it does, it may be testing a new legal theory of discrimination that harkens back to the FCC’s Equal Time Rule.

    Based on what has been seen thus far, this Equal Time theory suggests that if a financial services company fails to provide an equivalent opportunity to every demographic or political group, then it may be considered guilty of redlining violations. At issue is the way the Chicago-based lender advertises its services and, apparently, expresses its conservative political viewpoints. The small lender apparently has its own radio show on Chicago’s AM560 The Answer, the same radio ration that features Sean Hannity, Jay Sekulow, and Hugh Hewitt. Does this constitute discrimination against listeners who don’t agree with conservative commentators?

    An anonymous source confirmed that “an independent investigation of the lender’s HMDA data indicated that it was not an outlier and actually beat several larger peers.” The source said they were also scratching their head when they learned that an independent survey of Chicago African American residents revealed no perception of discrimination, leading them to wonder what was driving the case.

    As one person sent to me, “If the CFPB moves against a small lender without the finances to oppose it, we could see a legal environment that requires banks, lenders, title insurance agencies, real estate brokerage, real estate agents, loan officers, attorneys, and others to spread out their advertising budget evenly based on demographics, political affiliation, religious affiliation, or other metrics that might be a proxy for a prohibited basis under fair lending laws, even into markets and media outside of their competitive strategy. Or worse, this could be a free speech issue in which corporations, owners, and executives cannot express any political beliefs the then-current administration finds objectionable. Will companies started pulling their ads from Fox News and The Wall Street Journal, and moving them to MSNBC and the New York Times?

    “Seems incredible but consider the impact of conservative media losing half or more of its revenue just in time for the 2020 election cycle. It’s probably time to reach out to your Congressional representatives about this issue.”

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