Morning Report: The US yield curve inverts

Vital Statistics:

 

Last Change
S&P futures 2890 -41.5
Oil (WTI) 55.49 -1.64
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.88%

 

Stocks are lower after disappointing overseas economic data. Bonds and MBS are up on the flight to safety.

 

Overnight, the US yield curve officially inverted with 2s/10s trading at negative 1.7 basis points.  This has historically been considered a recession indicator. You can see the chart below, which plots the difference between the 10 year bond yield and the 2 year bond yield, and not that the shaded grey bars (which represent recessions) have historically followed after the line goes to zero. One caveat to keep in mind however: In the past, we didn’t have the sort of activism out of central banks that we have now. Quantitative easing (where the central bank tries to directly influence long term rates) are a new phenomenon, and therefore investors should take that signal with a grain of salt. Still, it does speak to a global slowdown, and that will inevitably pass through to the US.

 

2s10s

 

The German Bund yields negative 64 basis points, which is a record low. Their economy contracted by 0.1% last quarter. This is what is driving stocks lower and bonds higher. The trade war is being blamed on their economic weakness. China reported the slowest industrial growth since 2002.

 

The FHA announced they will widen the credit box for condos, in an attempt to revive the entry-level condo market and help the first time homebuyer. “This is set to really expand homeownership,” said Ben Carson, secretary of the Department of Housing and Urban Development, which oversees the FHA. FHA will now begin insuring loans in unapproved buildings, provided no more than 10% of the units have a FHA loan.

 

Mortgage applications increased 21.7% last week as purchases increased 2% and refis increased 37%. The average contract interest rate fell from 4.01% to 3.93%, and has dropped about 80 basis points this year. The government refi index is at the highest level since 2013, driven by VA refis.

4 Responses

  1. I have to say I am amused by all of the anti-trump business pressers who had never even heard of an inverted yield curve until this morning pontificate about what it means for the economy.

    Liked by 2 people

    • If it’s getting them face time on TV, they’ll find something to pontificate on. They have an opinion because it will get them a spot. Most of them have opinions that will appeal to the hosts or general network because it gets them a spot.

      I just got an email every second for 17 seconds. Most of them dealing with different stuff about different things and everything requiring I at least touch it. Christ on a cracker. I hate start of school normally, but we’ve got too many Big Picture folks thinking up ideas that us folks a little lower down have to find a way to execute. It gets old.

      Like

    • They are eating themselves.

      Which, I have to admit, just doesn’t excite me that much.

      Also, have no trouble with what Weisman was saying versus what the SJWs no doubt think he truly meant in his white, patriarchal heart.

      What Waleed Shahid is more irksome to me from a point of view that these folks should, in theory, be trafficking in data and facts and also nuance and context.

      Quoting Claire McCaskill (who said “Free stuff from the government does not play well in the Midwest”), Waleed responded: “Rashida Tlaib and Ilhan Omar are from the Midwest”, and “Medicare and Social Security are both technically free stuff, and they play very well. Prompting Weisman’s more honest and grounded response.

      Because I think Waleed–unless incompetent–understood McCaskill’s point. And probably also that Medicare and Social Security aren’t “free stuff” per se, but something every individual in the midwest, I’m sure, has paid into all their lives. They are poorly run, debt-ridden retirement and medical insurance programs.

      The point when people saying something like McCaskill did is that flyover country folks aren’t easily swayed by promises of the government swooping in to manage all parts of your life for your own good.

      But Twitter is the land of willful misinterpretation and intentional obtuseness.

      Also, it’s not a stretch to say that Rashia Tlaib and Ilhan Omar don’t exactly represent the rural heartland, or the cultural milieu of the heartland at present.

      The most depressing thing is that in a world not going f*cking crazy, what he said should be unremarkable, whether you agree or not. That he would get demoted and forbidden from using social media . . . holy frack. We’re going nuts. Climate change is the least of our worries when we’ve got this ever expanding list of thought crimes.

      Like

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