Morning Report: Bond yields spike

Vital Statistics:

 

  Last Change
S&P futures 3807 40.4
Oil (WTI) 65.60 1.86
10 year government bond yield   1.60%
30 year fixed rate mortgage   3.18%

Stocks are higher this morning after a strong jobs report. Bonds and MBS are down.

 

The employment situation report showed the economy added 379,000 jobs in February, which was above expectations. The unemployment rate fell from 6.3% to 6.2%. The labor force participation rate declined to 61.4%, and is down 1.9 percentage points from a year ago. The employment-population ratio stood at 57.6%, which is down 3.5 percentage points from a year ago. Overall, the number of employed persons fell by 8.5 million over the past year. Ignoring normal demographics and population growth, it will take two years worth of job numbers like January just to get back to where we were a year ago.

Average hourly earnings rose 0.2% MOM and 5.3% YOY. Average weekly hours fell however from 35 to 34.6. Overall, the payroll number was nominally good, but some of the internals aren’t fantastic.

 

The bond market abruptly sold off yesterday during Jerome Powell’s webinar at the Wall Street Journal. The issue revolves around something called the supplemental liquidity ratio for banks. This is real inside-baseball stuff that I won’t get into, but suffice it to say that trading in all sorts of derivative interest rate markets like the repo market are trading at negative rates. The punch line is that the sudden uptick in bond yields isn’t so much due to economic fundamentals as it is to other issues which are being driven by Fed banking regulations. These regulations are being further complicated by the political mood in DC which will interpret any changes as a sop to the banks. Mortgage rates aren’t necessarily ignoring the movement in the 10 year, but they are lagging the move.

 

United Wholesale has said “its us or them.” Brokers can either choose to do business with United Wholesale or they can use Rocket and Fairway. They can’t do both. Matt Ishbia, CEO of United Wholesale said: “If you work with them, can’t work with UWM anymore, effective immediately. I can’t stop you, but I’m not going to help you, help the people that are hurting the broker channel, and that’s what’s going on right now. We don’t need to fund Fairway Independent or Rocket Mortgage to try to put brokers out of business. We don’t need to do that. If you want to do that as your own deal, no hard feelings, but you can’t work with UWM anymore.” Apparently this comes after reports that Fairway and Rocket were soliciting brokers and working directly with real estate agents.

 

 

50 Responses

  1. More on what I consider one of the fundamental real problems we’re facing that could end up being very, very ugly (not will, but definitely could) from Glenn Greenwald:

    Twice in the last six weeks, warnings were issued about imminent, grave threats to public safety posed by the same type of right-wing extremists who rioted at the Capitol on January 6. And both times, these warnings ushered in severe security measures only to prove utterly baseless.

    https://greenwald.substack.com/p/as-the-insurrection-narrative-crumbles?token=eyJ1c2VyX2lkIjo4NTc0NzI2LCJwb3N0X2lkIjozMzMyMDg0NiwiXyI6ImlqVWlBIiwiaWF0IjoxNjE0OTcxMjg1LCJleHAiOjE2MTQ5NzQ4ODUsImlzcyI6InB1Yi0xMjg2NjIiLCJzdWIiOiJwb3N0LXJlYWN0aW9uIn0.4Wk1Ma3wLRjuqAkZoDi7g-tI_adSTapZKaqtzPsKTtc

    He says the narrative is crumbling, and I don’t disagree. But I’m not seeing how it actually matters that the narrative is crumbling, or that it is changing anything. Yet, anyway.

    This March 4 paranoia was not confined to NBC’s resident millennial hall monitor and censorship advocate. On March 3, The New York Times warned that “the Capitol Police force is preparing for another assault on the Capitol building on Thursday after obtaining intelligence of a potential plot by a militia group.”

    What intelligence? Why can’t we see it or find out where it came from? Why is it treated seriously when it is repeatedly wrong? January 6th was significant mainly in either incompetence or intentional neglect of the folks in charge of Capitol security on that day. But nothing at all happened on January 20th and nothing happened on March 4th and nothing is going to happen on the next day predicted to be the uprising of crazy right-wing domestic terrorists. This feels more and more like Oceania talking about an imminent attack by Emmanuel Goldstein.

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  2. Jonah Goldberg has officially become Jen Rubin

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    • Brent:

      Jonah Goldberg has officially become Jen Rubin

      So true. Sad to watch.

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      • True. And it makes no sense. If you read his books (which he now says he might have made different choices in) it really makes no sense. As I said, I think there is some connection to his income here and/or massive social pressure from somewhere.

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        • Otherwise why did so much of this transformation happen since he launched the Dispatch? That was like almost three years into the Trump admin.

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        • I suspect he has to atone for Liberal Fascism.

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        • Brent:

          I suspect he has to atone for Liberal Fascism.

          Which is ironic because his thesis is now being validated like never before.

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        • And I feel like he can’t not see that. But I’m guessing paychecks and social pressure (and perhaps the pressure of sexual indiscretions?) may have obscured his vision there.

          Although the populist right calling him a cuck for 4 years because he didn’t like Trump probably didn’t help.

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  3. Scott, has the volatility in the US bond market translate into anything in the Euro markets? Is the 10 year’s hedged yield way out of line with everyone else?

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    • Brent:

      Scott, has the volatility in the US bond market translate into anything in the Euro markets? Is the 10 year’s hedged yield way out of line with everyone else?

      US has moved way more than anything else. Since December, the spread between the 10yr USD and EUR swap rate has widened by about 40 bps, from around 120 to 160. The 10yr USD/GBP spread has widened less, but still widened from 55 to 77. So USD leading and outperforming.

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  4. The Biden admin, on opening up US borders:

    In but a few weeks, we already have designed an innovative program to bring people in through the ports of entry, those most acutely in need by reason of the fact that the have been remaining in Mexico for so long.

    WTF? Being in Mexico “for so long” produces an acute “need” to be granted access to the US?

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  5. It’s not just an oversight. Democrats apparently want to send so-called stimulus checks to incarcerated felons and illegal immigrants.

    How is this remotely acceptable to rational people?

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    • Lefty’s love to scare themselves with ghost stories.

      But c’mon, they have to have some level of reality to it to make it scary.

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      • “experts”

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      • But does it, George? Does it really?

        If there’s a WaPo article on this, check out the comments. I expect you will find it is perfectly adequate to get their engines running. They were all in on the Russian stuff. And a lot of far, far right people I’ve seen have been and sometimes are all in on QAnon trolling (not even real QAnon drops, just shit redditors have put out there to troll) because as crazy as it might be it fits with their internal narrative. Far lefties will, I expect, believe this story completely no matter how fact-free it is.

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  6. Evangelicals for Biden feel “used and betrayed” over his abortion policy.

    https://thefederalist.com/2021/03/07/evangelicals-for-biden-feel-used-and-betrayed-by-biden-fulfilling-his-radical-abortion-promises/

    Are these the dumbest people on the face of the earth?

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    • Low-information. People, in my experience, often don’t know what they don’t know, and also assume their knowledge is much more, and much more relevant or accurate or complete, than it is. So they feel themselves in a position to assess things they are not, or predict the future because they think they have knowledge in the present they simply don’t.

      Ergo, what is entirely obvious and predictable to us will blindside them. And while we are aware of people sounding the alarms, my guess is they had no idea anybody was because they don’t read those kind of sites or follow those kinds of people.

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  7. Trump has sent Cease and Desist letters to 3 R fundraising arms demanding that he be compensated for use of his name in fundraising.

    He wants the RNC and the Party’s House and Senate fundraising committees to cut him in on any funds raised using his name.

    It is certainly within character for him to do this. I wonder if anyone has ever licensed his or her name for fundraising purposes to an American party’s fundraising arm. I don’t recall a direct precedent.

    I do know of indirect precedents. For example, recently, Sen. Masto Cortez of Nevada as a funding chair took a piece of Dem Senate fundraising over her sig for her own campaign. Groups of candidates have shared fundraising over their sigs in the past.

    So it would not surprise me if the R fund raising committees cut a deal with Trump’s fund raising committee along those lines.

    Still, the DJT approach is, uh, uniquely adversarial.

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    • He doesn’t really like the establishment GOP and they are weirdly hostile to him while using his name to raise cash, so it makes sense.

      Pro-Trump stories report this as Trump telling the GOP they can’t use his name out of principal … not a cash grab.

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      • I also suspect he’d rather control fundraising for Repbulicans rather that a group that hated him and actively worked against him. If he’s smart he pockets 50%.

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        • I also think the control issue is real. Probably more important to him than the % split is the desire to cut out his opponents within the Party. Een he knows he could have simply negotiated a good % deal without a threat.

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        • Would it be wrong, considering how the establishment has and continues to treat him, for him to do this? I certainly don’t. If I were him I’d do what every politician in the world does, target their enemies.

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        • @George and @Scott:

          i pretty much agree, but am surprised at the suddenness of the tactic. He has enough pull that he probably could negotiate a good split on the telephone and a carve out of funding away from his “enemies” on any fund raising in his name.

          The tactic is in character because he has issued c&d letters like rainfall in Seattle his entire public life, both in business and as POTUS.

          It is possible that he is seeking so much control over the Party finances that he can blackball any perceived enemy, not based on his name in the fundraiser, but on any Party fundraiser even without his name. Do you think he has that in mind?

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        • I would hope so. He needs to rattle the cage and demonstrate who is in command of the base. One of Trump’s huge successes is small dollar donors. If I recall he exceeded both Hillary and Biden. That’s a big well that can be tapped and no rational actor want’s to see the party have access to it.

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        • Here is a fun one…AOC opted out of Pelosi signed ads in her CD because she did not want to be associated with the “conservative” Pelosi or pay the cut Pelosi’s campaign gets.

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        • Can’t blame her, if I was the face of the party I’d distance myself from Pelosi as well, wouldn’t you?

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        • Is there no one around her willing to tell her this is incredibly weird?

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        • It’s science you fucking rubes!

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        • Mark:

          because she did not want to be associated with the “conservative” Pelosi or pay the cut Pelosi’s campaign gets.

          Fun….until you realise that the Dems are now in power. Just another indication that anyone who thinks the Dem party is fundamentally “moderate” is bonkers.

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        • By comparison the Obama admin was the epitome of moderation. Although they seem to be in the same position on endless wars.

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        • Mark:

          Do you think he has that in mind?

          Consider me both ignorant and apathetic on the issue. Of far greater concern to me is what the current President has in mind, creating open borders, destroying election security, and embracing the destructive incoherency of trans ideology. Priorities.

          Like

    • Mark:

      Still, the DJT approach is, uh, uniquely adversarial.

      I thought he was targeting those 3 fundraising arms because they use their funds to continue to support the R congressmen who voted for his impeachment.

      Like

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