Morning Report: Treasury yields continue to work lower

Posted on December 17, 2021 by Brent Nyitray

Vital Statistics:

  Last Change
S&P futures 4,629 -17.2
Oil (WTI) 71.27 -1.18
10 year government bond yield   1.39%
30 year fixed rate mortgage   3.30%

Stocks are lower this morning on no real news. Bonds and MBS are up.

 

Bonds continue to rally in the wake of the Fed’s tapering decision. Not sure what is driving this, but it looks like every expert is predicting higher long term rates, and Treasury yields keep working lower. This is even more apparent at the long end of the yield curve (the 30 year Treasury). Not sure why this is the case, but it would indicate that the Treasury market is sanguine about inflation and worried about the longer-term growth of the economy. To put this into perspective, you can lend to the US government for 30 years at a rate of 1.81%, while the CPI is pushing 7%. I wonder if the Chinese real estate implosion is driving demand for US risk-free assets.

While Treasury yields are falling, mortgage rates are stuck right around current levels. I think this is nothing more than a reflection that the Fed will reduce its purchases of MBS, and investors not wanting to bid up paper. Since we are in the seasonally slow period for MBS issuance, the effect of the Fed’s reduction will be somewhat muted. It will probably become more evident in the Spring when purchase activity picks up again.

 

Industrial Production rose 0.5% last month, which was a touch below expectations. Capacity Utilization rose to 76.8%. Historically, high capacity utilization numbers generally corresponded with higher inflation. During the 1970s, capacity utilization was around 85%. Capacity Utilization is less important these days since the US economy is driven more by intellectual property and services.

 

The number 1 reason why mortgages get declined (at 32% of declines) is too-high debt-to-income ratios. The second reason is a low credit score (26% of declines).

 

Home flipping profits are slowing down, according to ATTOM. “Home flipping produced another round of competing trends in the third quarter of this year as more investors got in on the action but got less out of it,” said Todd Teta, chief product officer with ATTOM. “It’s clear that declining fortunes weren’t enough to repel investors amid a typical scenario of 32 percent profits before expenses on deals that usually take an average of five months to complete. We will see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring them into the home-flipping business or start pushing them elsewhere.”

Still amazing that Zillow managed to lose money flipping houses in this market.

Filed under: Economy, Morning Report |

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25 Responses

  3. jnc4p, on December 17, 2021 at 6:02 pm said:

    So it looks like it’s true:

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    • Brent Nyitray, on December 18, 2021 at 12:34 pm said:

      so the left has decided to move on to kamala. orders have been disseminated to the media

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      • Let the mutherfuker burn!, on December 19, 2021 at 2:27 am said:

        Fascinating that he’s just realizing this now.

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        • ScottC, on December 19, 2021 at 4:57 am said:

          McWing:

          Fascinating that he’s just realizing this now.

          When will he finally come around on the Russia Collusion Hoax?

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        • Kevin S. Willis, on December 19, 2021 at 6:40 am said:

          Considering vaccines have always been about preparing your immune system to fight infection, not magically put you in a bubble that prevents exposure, yeah. And what is the value to never being infected as opposed to being infected but also being asymptomatic? It’s an entirely emotional take.

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        • Brent Nyitray, on December 19, 2021 at 12:03 pm said:

          It’s an entirely emotional take

          That is the modern left. It is all about emotion.

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        • novahockey, on December 20, 2021 at 10:53 am said:

          “And what is the value to never being infected as opposed to being infected but also being asymptomatic? ”

          well, the fear is that at some point, COVID will destroy you from the inside. like ebola or something.

          I also think that there’s a bit of “i did everything right and it’s not fair that these people are catching it and it’s not a big deal. i was told death sentence.”

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        • Kevin S. Willis, on December 20, 2021 at 8:20 pm said:

          Long Covid. Which is a risk, sure, but as the COVID virus variants become more and more like the kinds of corona viruses that cause common colds, and as symptomatic, the most logical expectation is that the long term effects will be similar to those of the common cold–i.e., nothing specific identified. But for some handful of people there might be something.

          But the long term effects of alcohol and, say, sugar, are much more dangerous. Sun exposure potentially. In terms of people likely to have a negative effect from something they put in their body (i.e., “get exposed” to).

          But it would seem to me that the rational take is that–given it’s a corona virus–mutations are becoming more contagious and less deadly/symptomatic, so we’re well on our way to corner virus being much less of a big deal. Which does happen, which is how most flu pandemics finally end (historically). Not the power of masking and lockdowns.

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        • jnc4p, on December 20, 2021 at 2:15 pm said:

          “i did everything right and it’s not fair”

          This. 1000% this. See Waldman’s column on Friday about pretending to be concerned about a coming “Red State Wave” of COVID.

          Their biggest fear/resentment is that due to geography and/or climate, blue states could get hit worse than red states and it wouldn’t be fair.

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        • Brent Nyitray, on December 21, 2021 at 2:01 pm said:

          Westchester County is back in full COVID freakout mode.

          Partying like its 2020

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        • jnc4p, on December 22, 2021 at 7:40 pm said:

          The best is this NoVA:

          Like

  4. ScottC, on December 19, 2021 at 8:39 am said:

    FYI, all, I am now back in the good old USA (although as my brother pointed out to me upon arrival, it really isn’t the good old USA anymore, but something else entirely). If anyone is ever in the Charlotte area, let me know and I will buy you a drink.

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    • Kevin S. Willis, on December 19, 2021 at 10:09 am said:

      It’s still the good old USA in most of the south, and frankly in a lot of the rural communities even in bluer states. My last vacation was to a rural area in Arkansas—good old America down there as far as they eye could see. Someone had bought a billboard there that just said “Trump Won” and another that said “Biden Cheated”.

      A vacation before that was to another area in Arkansas and it was before the election and Trump signs were everywhere. One guy had a field full of them, another place was like a stand-alone bar and it was festooned with Trump banners.

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    • Kevin S. Willis, on December 19, 2021 at 10:09 am said:

      Also: welcome back!

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  5. Brent Nyitray, on December 19, 2021 at 1:51 pm said:

    The left is not taking the Manchin no very well.

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