Morning Report: Flight to safety continues

Vital Statistics:

S&P futures4,357-10.2
Oil (WTI)100.945.63
10 year government bond yield 1.79%
30 year fixed rate mortgage 4.09%

Stocks are lower this morning as the risk-off trade continues. Bonds and MBS are up.

The markets continue to buy sovereign debt in a flight to safety. The German Bund yield went below 0% overnight and is now sitting right above 0. The 10-year flirted with 1.7% as well.

We are seeing big moves in commodity prices again, with wheat trading at 982, up 23% since before the invasion. WTI Oil is above $100 a barrel.

I suspect that mortgage originators will get a break yet again as yields work lower and mortgage grudgingly follow. I suspect this will take a while to work out. Maybe 2022 won’t be as bad as people are fearing. Unless things take a turn south in the overall bond market, margin calls shouldn’t be an issue for lenders.

The thing I am going to watch closely is credit spreads and whether we see an impact on the banks. Some of the usual suspects in Europe (SocGen, Deutsche Bank) are taking a beating on this Russian situation, and Raiffeissen getting smoked, down almost 50% since January 31. The Russian market is more or less uninvestable at this point, and might even get downgraded from an “emerging market” to a “frontier market.” Note Russian stocks are halted again today, and Euro exchanges are beginning to suspend Russian GDRs from trading.

If credit spreads begin to widen, it will have reverberations in the mortgage market. First and foremost, it will cause a flight to safety, which means that Treasury yields will fall. It will also be beneficial to Fannie and Freddie mortgage backed securities since those are more or less guaranteed by the US Government. Non-QM might take a hit. That said, rising home prices provide a benign backdrop for housing credit.

Jerome Powell heads to the Hill tomorrow and Thursday for Humphrey-Hawkins testimony. I am not sure what he can realistically comment on Ukraine except to say that the Fed will be monitoring the economic data closely and react accordingly. Investors are paring back bullish bets on rate hikes. The March Fed Funds Futures are now pricing in only a marginal chance of a 50 basis point hike.

The December futures are centering around an end-of-year Fed Funds rate of 1.25%. They were looking at 1.75% pre-invasion.

Home Prices rose 19.6% in February, according to the Clear Capital Home Data Index. This is the most timely real estate index out there. The West and South saw prices rise 23%, while the Northeast and Midwest rose about 15.5%. Separately, home prices rose 19.1% in January, according to CoreLogic. They are expected to rise 3.8% next year.

12 Responses

  1. On a totally different note, let’s not forget that Biden snuck in his racist affirmative action pick for SCOTUS under the veil of Ukraine coverage.

    What’s the over/under for number of R yes votes she gets? It should be zero, but I’ll bet she gets at least 5.


  2. Vice President Kamala Harris explaining the Ukraine situation:

    So Ukraine is a country in Europe. It exists next to another country called Russia. Russia is a bigger country. Russia is a powerful country. Russia decided to invade a smaller country called Ukraine. So, basically, that’s wrong.

    No, she wasn’t talking to a group of 2nd graders. She was doing a radio interview.

    This is the kind of thing you get when you prioritise hiring people based on the color of their skin and the type of sex organs they have rather than the quality of their intellect.

    Thanks, Biden voters!


  3. Today is the ten year anniversary of Andrew Breitbarts’s death.


  4. Interesting info from Wisconsin on the most secure election in history.

    From the details exposed in Monday’s special counsel report, the state legislature has much work to do to address “the numerous questionable and unlawful actions of various actors in the 2020 election.” The first unlawful action, according to the report, concerned the payment of grant funds to five Wisconsin counties that were used to facilitate voting. That arrangement, Gableman wrote, violated Wis. Stat. § 12.11, which prohibits election bribery by providing it is illegal to offer anything of value to or for any person in order to induce any elector to go to the polls or vote.

    According to the report, Priscilla Chan and Mark Zuckerberg providing financing that allowed the Center for Tech and Civic Life to offer nearly $9 million in “Zuck Bucks” to Milwaukee, Madison, Racine, Kenosha and Green Bay counties. In exchange, the “Zuckerberg 5,” as the report called the counties, in effect, operated Democratic get-out-the-vote efforts. Those grant funds then paid for illegal drop boxes to be placed in Democratic voting strongholds.


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