Daily Rate Summary
Wednesday, July 18th 2018

Mortgage Rates and Treasury Yields Rise Slightly.
On Tuesday, Treasury bond yields and Mortgage interest rates rose slightly as the CB coordinated global growth recovery meme begins to fold leaving institutional bond investors to allocate back to fixed income securities.  The U.S. 10-Year Note is oscillating between 2.75% and the psychological important 3.00% yield level.  Though Stocks have fallen some, prices are still lofty just a couple of percent off all-time-highs in indexes.  Nervous investors mull economic signals and the impact of the Tax cut on future growth potential & the aging economic recovery. The 10-Yr. Treasury Note stood at a yield of 2.864% and the 30-Yr. U.S. Treasury Bond yielded 2.969%.  The 30-Year Mortgages according to Freddie Mac were around 4.53% for conforming and 4.62% for Jumbo products.


According to Zerohedge.com, “This week's calendar features a steady stream of potentially interesting events culminating with Fed Chair Powell's semi-annual Monetary Policy Report, as well as the currently ongoing summit between President's Trump and Putin, the overnight EU-China summit, US earnings including the remaining banks, the relatively subdued China Q2 GDP data and the slowdown in US retail sales data.”

Key Economic Releases for the Week of July 16th – 20th.
Source: BEA, BLS, Census Bureau, Federal Reserve, ISM, U of M, IHS Markit, Bloomberg and Barclays Research.
(Chart courtesy of Zerohedge.com).

“Finally, here is Goldman's forecast for the week:  The key economic releases for the coming week include retail sales on Monday and industrial production on Tuesday. In addition, there are several scheduled speaking engagements by Fed officials this week, including Fed Chairman Powell’s testimony to Congress on Tuesday and Wednesday,” said Zerohedge.com.

“Following May's plunge in building-permits (starts jumped), June was expected to deliver a rebound, but it didn't. Permits dropped 2.2% MoM (vs +2.2% exp) but Housing Starts collapsed 12.3% MoM (after May's 4.8% rise MoM).

This is the 3rd month of declining permits in a row and biggest drop in starts since Nov 2016.  Total housing starts declined (YoY) for the first time since Dec 2017.  The collapse in starts was broad based:  Single-family starts down from 944K to 858K.  Multi-family starts down from 381K to 304K. 

But the decline in permits was dominated by multi-family units.  Single-family permits rose from 843K to 850K , +0.8%; while, Multi-family permits fell from 424K to 387K , -8.7%, the lowest reading since May 2017,” said Zerohedge.com.

U.S. Housing Starts Fall -12.3% (MoM) for first yearly decline since December 2017.
(Chart courtesy of Zerohedge.com).

U.S. 30 Year Note Yield is below 3.00% again.
(Chart courtesy of Zerohedge.com).

U.S. 10 Year Note Yield back at about 2.85% again.
(Chart courtesy of Zerohedge.com).

 

The 10 Year U.S. Treasury Note has tested the lows and is moving back to the upper trading range in bond yields.  We await whether that gap at 2.05% will get filled in coming months.  If so, we will get another run at historically low rates before the final blow-off in Credit Markets sends Mortgage Interest rates up for good.

The above Chart does suggest that a constructive set-up is forming in the 10 Year Treasury Note with the potential to push the yield to around 2.00% over the next year.  It is crucial that Mortgage Rates stay at or below 4.00% or demand for mortgage loans will dry up.  The window of opportunity for borrowers seeking mortgage refinancing & home purchases is still open for now.

Market-Implied Probability of a 2 Additional Rate Hikes rises to 35.0%.
(Chart courtesy of Zerohedge.com).

 

 

As can be seen from Freddie Mac’s Mortgage Market Survey, last week, 30 Yr. Fixed Mortgage rates for conforming loans hit 4.53% having increased by 1 basis points (bps) from the previous week and are still near the highs for 2018.

 

Treasury Prices Fall and Yields Rise for U.S. 10 Yr. and 30 Yr. Treasuries.
At the Chicago Board of Trade (CBOT): the US 10 Year Treasury Note futures Contract for September settlement closed at a price of 120’04 / 32nds; the 10 Year Note was down 1.5 ticks on the day, yielding 2.864%.  The US 30 Year Treasury Bond futures Contract for September settlement closed at a price of 145’01 / 32nds; the 30 Year Bond was down 3 ticks on the day, yielding 2.969%.  Mortgage Rates are near their 2018 highs and increased by 1 basis points (bps) from the previous Freddie Mac Survey last week.

Thanks to ZeroHedge.com, National Association of Realtors (NAR), Macro-Tourist Kevin Muir, Bureau of Labor Statistics (BLS), Macro-Tourist Kevin Muir, Google.com, FRED, Citi Research, Bureau of Labor Statistics (BLS), Aspen Graphics / Bloomberg, BEA, BLS, U.S. Census Bureau, Federal Reserve, ISM, U of Michigan, IHS Markit, Bloomberg and Barclays Research, B of A Merrill Lynch Global Research, Goldman Sachs, Deutsche Bank (DB), Bloomberg, and FreddieMac.com for Charts and Graphics.

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Disclaimer: The Information & content in this message is solely the opinion of the author and believed to be from reliable sources. Charts and tables contained herein were taken from other sources and a best effort was attempted by the author to give attribution where possible. None of this material should be construed as fact, and is not intended for use by reader as investment advice or relied upon for making financial decisions.