Morning Report: The bond vigilantes return

Vital Statistics:

 

  Last Change
S&P futures 3699 -19.3
Oil (WTI) 50.02 0.24
10 year government bond yield   1.03%
30 year fixed rate mortgage   2.78%

Stocks are lower this morning as the Georgia runoff results are coming in. Bonds and MBS are getting clobbered.

 

Democrats have won one of the GA Senate seats and the other remains too close to call. Unified control of the country by Democrats is bearish for stocks and bonds, and the 10 year is trading above 1%.

 

The reaction in the bond market indicates that the bond vigilante is awakening from its 30 year slumber. The Bond Vigilantes bedeviled Bill Clinton’s first term as anything he did to stimulate the economy was greeted with higher interest rates.

 

The FOMC minutes will be released around 2:00 pm this afternoon. It probably won’t be market-moving, but just be aware.

 

Mortgage Applications fell 4.2% over the two week holiday period as purchases fell 0.8% and refis fell 8%. “Mortgage rates started 2021 close to record lows, most notably with the 30-year fixed rate at 2.86 percent, and the 15-year fixed rate at a survey low of 2.40 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The record-low rates for fixed-rate mortgages is good news for borrowers looking to refinance or buy a home, as around 98 percent of all applications are for fixed-rate loans. Despite these low rates, overall application activity fell sharply during the holiday period – which is typical every year. Refinance applications were 6 percent lower than two weeks ago, and purchase activity less than 1 percent from its pre-holiday level.”

 

The economy lost 123,000 jobs in December, according to the ADP report. The Street is looking for 65,000 jobs in this Friday’s jobs report.

 

Manufacturing improved in December, according to the ISM Report. Overall, the report says that despite the COVID-19 headwinds, things are getting better. One thing did jump out at me: Every commodity was up in price. Nothing was down, and there were all sorts of shortages. Whether this is just a COVID-related bottleneck remains to be seen, but commodity booms are usually associated with higher inflation.

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