Morning Report: Bonds down on Italian fears

Vital Statistics:


Last Change
S&P futures 2393 -92.4
Oil (WTI) 24.51 -2.39
10 year government bond yield 1.08%
30 year fixed rate mortgage 3.44%


Stocks are down big this morning as we continue the volatile markets. Bonds are getting slammed, where the US Treasury is following the carnage in Europe.


Volatility begets volatility, and that is what we are seeing. Oil is now at a 17 year low. The ironic thing is that gasoline prices will be ridiculously low for the summer driving season, but there will be nowhere to go. European bonds are selling off due to fears that the Italian economy is going to be so bad that they will need a bailout from Germany. The German Bund has picked up 50 basis points in yield, going from -78 basis points on Friday to -28 today. The US Treasury is being pulled along for the ride.


Washington is putting together a panoply of measures to try and support the economy while everyone hunkers down at home. It looks like the government is going to give everyone $1,000 in a couple of weeks to get people through this tough time. Multiple industries will probably get some sort of help, with hospitality and airlines at the front of the line. As oil falls, the frackers will be soon behind, and I suspect the mall REITs will be next. Companies are suspending stock buybacks left and right, which may explain some of the sogginess in the stock market.


Homebuilder sentiment fell in March to 72, which is still strong. I have heard that construction activity has been suspended in the Bay Area, and I saw that Loan Depot has ceased accepting loans from all of the counties surrounding San Francisco.


Housing starts came in at 1.6 million again in February. Building Permits were 1.45 million. February was probably too early to be affected by Coronavirus, so March will be a better tell.


Mortgage applications fell 8% last week as purchases fell 1% and refis fell 10%. Between margin calls and a lack of investor appetite for refis, mortgage rates backed up last week. Don’t forget that mortgage backed security investors detest volatility in the bond market. It makes hedging their portfolios more expensive, and the prepay option (which an MBS investor is short) more valuable.


Despite the moves by the Fed in the markets, the mortgage REITs continue to get slammed. I suspect this is a “shoot first, ask questions later” mentality on the part of investors, but some of these stocks are looking crazy cheap, trading at half of book value and some with dividend yields of 20% + (one of which declared its normal dividend yesterday) Watch the REITs, because their appetite for paper flows through to mortgage rates.

17 Responses

  1. Companies are suspending stock buybacks left and right, which may explain some of the sogginess in the stock market.

    This is somewhat amusing to me. All those great tax breaks lead to a lot of buybacks rather than holding money for a rainy (coronavirus) day.

    It’s no wonder most Americans still live paycheck to paycheck and neither industry nor households have money to weather this one.


  2. According to some things I’ve been reading hospitals across the nation are beginning to address the shortage of ventilators that may be needed by coming up with a disaster oriented triage plan. Picking and choosing who will receive the breathing support based on things like age, life expectancy, pre-existing conditions, etc. They do this from the administrative level so that doctors aren’t taxed with making those kind of decisions in the stressful situation of trying to save every life. Also things like prioritizing value based on profession are being discussed.

    Let’s hope none of this actually transpires. I wouldn’t want to be in NY right now.

    Liked by 1 person

    • Imperial College London Research team sets out three scenarios for the UK and the US. Well, three for the UK and two for the US,


      • It should be intuitively obvious that the required health care expenditures should be separate from a stimulus plan and should come first.

        Ramp up for surgical masks and other protective equipment for health care workers, test kits, ventilators and respirators, and initial provisions for MASH units RIGHT NOW, with stimulus packages to be discussed and perhaps rolled out piecemeal, soon, but after the initial ramp up for first responders and sick folks.


        • I agree Mark. It looks like the Administration is beginning to get that rolling, thank goodness.


        • woking on it!


          that said. you all need to stock up and be pepared to shelter in place.

          Liked by 1 person

        • that said. you all need to stock up and be pepared to shelter in place.

          really? where do you think this peaks out in terms of cases?

          Liked by 1 person

        • no idea. but the “freak out” on the hill ramped up a lot over the past 24 hours. Italy is being thrown around. whether its accurate or not almost doesn’t matter.

          the comfort is on its way to NYC and NYU is emptying out and may be converted to hospital beds.

          Liked by 1 person

        • Question:

          Would this be a lot easier to deal with if so many people didn’t live on top of each other in big cities like NY and LA and SF?

          Liked by 1 person

        • i think so. suburban life was made for this. 6 feet apart? cakewalk.

          Liked by 1 person

        • I live in Riverside County in So Cal and we just watched a 75 minute news conference broadcast from KTLA which serves LA/Inland Empire. There are 19 cases here now, 3 deaths and 2 new cases today, one in the small city north of us (Corona) and one in the small city south of us (Eastvale). Neither are high density. It was really interesting seeing how the county has pepared and continues to prepare for the spread of the virus.

          You might remember that March Air Reserve Base (here in the county) quarantined the passengers and crew from a plane coming from China a couple of months ago. I’m relieved to see that they are so on top of it although I’ve refused to panic regardless.

          They were very, very seriously asking people to practice social distancing in a really big way and for those of us over 65 to not leave our homes unless it was an absolute emergency. We are now being told to have neighbors shop for us or have groceries or food delivered.

          They reported on the availability of protective gear for 1st responders, hospital capabilities, testing availability etc. They really covered everything including mental health and what they are doing to help the homeless here. They’ve only had the capability to test 700 so far because of kit and accompanying product that goes with the testing availability but are hoping to ramp that up this week. Right now only one drive thru testing station which they are primarily using to test 1st responders and a few folks sent by their primary care docs. They’re only able to test 60 per day right now.

          We’ve never ordered food online or had food delivered other than the occasional pizza, lol, so I get to learn something new!

          Stay well everyone! I’m hoarding money right now. 😉


        • Sounds like responsive and good local government, that has to provide and sense of some relief.

          Liked by 1 person

        • It does McWing. I think there are a lot of local governments that are doing very well by being prepared and passing valuable information along. I do think cities like NY, SF and LA are more susceptible to higher transmission. I’m still not worried about either Walter or I, we’re just trying to do our part by not being reckless.

          There is one case in a local rest home they’re worried about but everyone, patients and staff, have been tested. They’re waiting for results from those.

          Liked by 1 person

  3. Why Texas is better.


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