Morning Report: Futures predicting another rate cut in two weeks

Vital Statistics:


Last Change
S&P futures 3039 -70.25
Oil (WTI) 46.46 -0.29
10 year government bond yield 0.94%
30 year fixed rate mortgage 3.28%


Stocks are down again on coronavirus fears. Bonds and MBS are up with the 10 year trading below 1% again.


The Fed’s rate cut doesn’t seem to be having the desired effect. Volatility in the markets continues, and to be honest, I don’t see how cutting interest rates is going to make any difference. The markets don’t have a credit availability issue, and lower rates aren’t going to entice people to take a cruise all of a sudden. The Fed is also running out of ammo if we do experience a recession.


Speaking of rate cuts, the Fed Funds futures are handicapping a 50% chance of a 25 basis point cut and a 50% chance of a 50 basis point cut at the March meeting in two weeks. The December futures are assigning a 27% chance we go back to zero.


fed funds futures


The Coronavirus has certainly been a double-edged sword for mortgage originators. The MBA Mortgage applications index increased by 15% last week as purchases fell 3%, but refis rose 26%.


“The 30-year fixed rate mortgage dropped to its lowest level in more than seven years last week, amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Refinance demand jumped as a result, with conventional refinance applications increasing more than 30 percent. Given the further drop in Treasury rates this week, we expect refinance activity will increase even more until fears subside and rates stabilize.”

“We are now at the start of the spring homebuying season,” Fratantoni added. “While purchase applications were down a bit for the week, they are still up about 10 percent from a year ago. The next few weeks are key in whether these low mortgage rates bring in more buyers, or if economic uncertainty causes some home shoppers to temporarily delay their search.”



If the March Fed Fund futures are correct, we could be looking at mortgage rates with a 30 year fixed rate mortgages with a 2 in front of them. While this could generally be a good thing for mortgage bankers, people that hold mortgage servicing rights are about to get a 2×4 to the side of the head as prepay speeds accelerate. And their broker dealers are asking for more margin as rates rally. The best of times, the worst of times…


Optimal Blue, the loan pricing engine many bankers use has experience record volume and has been experiencing latency issues as a result. Unfortunately Optimal Blue was making some tech migrations when all of this hit.


The CFPB may get its wings clipped at the Supreme Court. At issue is whether the President can replace the Director of the CFPB without cause. The Trump Administration is siding with the Plaintiff in this case and is refusing to defend the Agency’s structure. The House has sent its general counsel to defend the agency. While SCOTUS probably won’t go so far as to rule that the agency be disbanded, it is likely to rule that the President is free to appoint a director that shares his ideology.



23 Responses

  1. Okay even though I originally thought the COVID19 virus was going to be no big deal here, I’m beginning to change my mind. I’m linking two podcasts (I’ve only listened to the first one so far) and an article from the LA Times. I’m not making any judgements re the Administration on their response, as far as I can tell, it seems to be at least adequate. Honestly, just linking them here as a way to share information. You may or may not believe any of it……………up to you. My children are all supposed to be coming to CA for my birthday in 5 weeks, all of them flying, but we’re considering cancelling or at least postponing the trip. We haven’t decide yet but we’re trying to stay informed.

    I don’t know anything about a political persuasion re The Daily and the LA Times article never mentioned Trump so hopefully these are sources that you might think are valid……………..


      • Thanks JNC, Walter and I were just discussing this earlier. I think it’s good to stay informed. I sent this to my kids as well.


        • At the risk of sounding like Trump, I tend to think that the Korean statistics are probably the most accurate at this point:

          “Some of the countries that have done more widespread testing happen to have lower CFRs. In South Korea, for example, where they are testing thousands of people every day, they’ve picked up more than 6,088 people with the virus. Among those, 35 have died. That’s a case fatality rate, for the moment, of around 0.5 percent.”

          Considerably worse than the seasonal flu, but not the end of the world.


        • If it’s respiratory in nature you have to consider previous/current smoking of infectee’s, it’s going to have a greater impact in Asia and Eastern Europe than in Western Europe and the US.


        • That makes sense.

          Some MDs and medical websites [I think NEJM] think this will have a similar effect in the USA to the Asian flu of ’57-’58, that had an overall estimated mortality of .7%. Worse for smokers and health impaired people, better for young and healthy people, and not bad for old healthy people who had survived many flu outbreaks.

          I was a soph in HS in NJ on the X-country team. Team ran against the plebes at West Point and everyone in the locker room got Asian flu after. I was getting better after a week but then got bronchitis, missed almost two more weeks, and never went out for hoops.

          But none of us died. I never ran a super high fever, either. I don’t know what my mom did to clean the bathroom after me, because I wasn’t there at the same time. I was kept apart from my little sister. My parents seemed unconcerned for themselves, beyond washing a lot and staying several feet away from me.

          It was considered the worst flu epidemic since the Spanish flu, but it was nowhere near as bad as that.


        • Actually, NEJM is less sanguine than I thought. I quote:

          There are two reasons that Covid-19 is such a threat. First, it can kill healthy adults in addition to elderly people with existing health problems. The data so far suggest that the virus has a case fatality risk around 1%; this rate would make it many times more severe than typical seasonal influenza, putting it somewhere between the 1957 influenza pandemic (0.6%) and the 1918 influenza pandemic (2%).2

          Second, Covid-19 is transmitted quite efficiently. The average infected person spreads the disease to two or three others — an exponential rate of increase. There is also strong evidence that it can be transmitted by people who are just mildly ill or even presymptomatic.3 That means Covid-19 will be much harder to contain than the Middle East respiratory syndrome or severe acute respiratory syndrome (SARS), which were spread much less efficiently and only by symptomatic people. In fact, Covid-19 has already caused 10 times as many cases as SARS in a quarter of the time.

          Liked by 1 person

        • I agree with both of you. I’m certainly not in panic mode here and I think the numbers to be determined later will significantly change the death rate lower. We’re just beginning to get cases here in CA, mostly in the SF area, so it bears watching for me and mine.


        • “think the numbers to be determined later will significantly change the death rate lower. ”

          There you go supporting Trump again. Are you sure you aren’t a Russian?

          (this is sarcasm based on the rejection of any contrary information from the narrative at PL)


        • I’d have to do the DNA test to see if I’m Russian…..maybe? 😉


        • Oh wait……………that’s not a race…………

          I’m sure I’d be shunned at the PL.


        • DNA test would still work. It determines ancestors areas of origin.

          That’s how you can determine how much Irish and French you have with them.


        • Yes, I did that at without the DNA. It was very interesting…………….no Russians though.

          Liked by 1 person

  2. Good piece on how activists won’t adopt certain arguments to make the case for immigration & legalization because they oppose the values inherent in the arguments:


  3. Isn’t it obstruction of justice to threaten a federal judge if he doesn’t rule the way you want?

    “I want to tell you Gorsuch, I want to tell you Kavanaugh: You have released the whirlwind, and you will pay the price,” the New York Democrat said Wednesday at a rally for abortion rights. “You won’t know what hit you if you go forward with these awful decisions.”

    Wonder what Roger Stone thinks.


  4. Mark

    Actually, NEJM is less sanguine than I thought.

    Yes, I am too. I think the next few weeks will give us more information. Kasi works with a lot of scientists, and is one herself, and she and they are somewhat worried that it’s here and will spread. Most of us won’t feel the effects but she does think the affected rate could be a bit scary. She’s worried about Walter and I and her sister in SF.

    I keep thinking with a change of weather we’ll see the cases decline and so we’ll see how this plays out. I AM NOT going to the store to stock up though……..:-)

    Also, in regards to the financial impact, Walter and I are already seeing some negative impact to our business. We have a shipment scheduled to leave Taiwan in a few weeks, which we have to pre-pay, and we’re worried that it may not leave or will get stuck in customs or quarantine. In other words, we paid the bill, but can’t sell! Normally this time of year our business is picking up and we’re busy. I just bought another 1,000 piece puzzle because that’s not happening.


  5. Honestly, I know most of you here think Trump isn’t that bad even though he’s kind of a joke. Sure the economy is strumming along, until COVID19 (I don’t blame him for that), but the guy is an embarrassment.

    And I quote………..

    When reporters pressed him on what precautions people should take before getting on a flight, health officials in the Roosevelt Room urged the flying public to wash their hands and not touch their face.

    “I haven’t touched my face in weeks!” Trump said to laughter. “I miss it.”

    Liked by 1 person

    • I think everybody here would agree he comes off as a buffoon. It’s policy where he’s not that bad (and sometimes quite good, IMO). But the constant tweeting and self-obsession and bizarre non-sequiturs are not what I’d like to see from the president.


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