US Trade Weighted Broad Dollar Index Hits All-time High!

The US Trade Weighted Broad Dollar Index just hit an all-time high!

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Meanwhile, President Trump keeps needling Powell and The Fed to lower interest rates, but Trump can’t seem to make Powell his.

Meanwhile. Powell’s Jackson Hole speech is helping to push down the 2-year Treasury yield.

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The 10Y-3M Treasury curve slope fell to -43 basis point on the China/Fed (Ched?) fistfight.

And the Treasury/Swap curves remain … Ched’d?

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Meanwhile, Powell and Fed Fans are in Jackson Hole Wyoming doing “Talk, talk.”

New Home Sales Decline 12.8% In July (+0.6% YoY), Median Price Up 2.22%

Sales of new single‐family houses in July 2019 were at a seasonally adjusted annual rate of 635,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.8 percent below the revised June rate of 728,000, but is 4.3 percent above the July 2018 estimate of 609,000.

But on a year-over-year (YoY) basis, US new home sales rose 0.6%.

The Midwest, South and West saw MoM declines of over 10%. Median price for new homes rose 2.22%.

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Shakin’ All Over! German Yield Curve Completely Negative Yield As Germany Issues €869M Zero-coupon Bonds At -0.11% (Tried To Sell €2B)

Things are getting crazy in Europe, particularly in Germany and Denmark,

As Brexit approaches, Germany is desperately trying to save their economy (or at least their banking system) by borrowing at negative rates for 30-years.

The German government sold 869 million euros of 30-year bonds with a negative yield, for the first time ever, adding to the world’s growing $15 trillion in existing negative yielding debt.

The bund, set to mature in 2050, has a zero coupon, meaning it pays no interest. Germany offered 2 billion euros worth of 30-year bunds, and investors were willing to buy less than half of it, with a yield of minus 0.11%.

Here are the German sovereign yield curve (blue) and the Danish sovereign curve (green).

Of course, the US Treasury curve has the same “bucket” shape as Germany and Denmark (as well as numerous other nations).

The US Treasury 10Y-3M curve slope is now -40 BPS.

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While not totally submerged, Sweden, France and the UK all have the bucket shape.

Just so we understand, it’s not just Europe that is slowing. China is slowing too (and before the tariff war).

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Sovereign yield curves are Shakin’ all over.

Mortgage Market Reopens to Risky Borrowers (Strict Lending Requirements Put In Place After Financial Crisis Are Starting To Erode)

This is a surprising story …. NOT!

(Wall Street Journal) The risky mortgage is making a comeback.

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit.

The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post-crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford.

Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans.

Proponents of unconventional loans argue that mortgages became too hard to get in the aftermath of the crisis and that their proliferation will open the housing market to sound borrowers who had been shut out of it. But some worry that the competition for customers could drive lenders to loosen standards too much.

Right now, unconventional loans are largely being extended by nonbank mortgage lenders. But big banks have found another way in: JPMorgan Chase & Co., Credit Suisse Group AG and Citigroup Inc. have in recent months been arranging mortgage bonds backed by unconventional loans.

Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter.

…

Fannie Mae and Freddie Mac (FF) back about half of new mortgages in the U.S.

Actually, it is no surprise to learn that credit standards have been eroding.

FF are seeing debt-to-income (DTI) ratios rising again (back to 2005/2006)/

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Average credit (FICO) scores have been declining since 2012.

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While DTI and FICO are eroding in terms of credit quality, average LTV is higher now than during the housing bubble era of 2005-2007. That is called “chasing risk.”

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Let’s see how FF behave after the “patch” is lifted.

Beyond The Sea! Boston Fed’s Rosengren’s Plea To Not Cut Rates While Europe Slows (17 European Nations Have Negative 2Y Yields, 13 European Nations Have Negative 10Y Yields)

What a difference 10+ years make in financial markets.

Here is the US Treasury yield curve at the height of the housing bubble (2005) compared to today. Back on July 1, 2005, the yield curve was upward sloping whereas today the curve is inverted at tenors of 5 years or less, then upward sloping.

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At the ten year maturity, both Canada and the US are below 2% in terms of yield (Venezuela is at a whopping 55%!). Chile, in USD, is just about 2%.

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Beyond the sea (Atlantic), there are 13 nations will negative 10-year sovereign yields. Plus the European Financial Stability Facility is at -0.357%.

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At the two-year maturity, Europe has 17 nations with negative yields. And tanking.

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The Boston Fed’s Rosengren is arguing against further rate cuts from an effective Fed Funds rate of 2.1250% while the European Central Bank (ECB) target rate is … -0.40%. That is quite a spread!

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(Bloomberg) — Federal Reserve Bank of Boston President Eric Rosengren continued to push back against further interest-rate cuts by the central bank, arguing he’s not convinced that slowing trade and global growth will significantly dent the U.S. economy.

Meantime, President Donald Trump urged the Fed to cut by a full percentage point to aid U.S. and global growth while complaining the “dollar is so strong that it is sadly hurting other parts of the world”

The German government is getting ready to act to shore up Europe’s largest economy, preparing fiscal stimulus measures that could be triggered by a deep recession, according to two people with direct knowledge of the matter.

Rosengren’s point is that the US economy is still growing with low unemployment while Europe is grinding to a halt. Germany is at 0.40% YoY, Italy is at 0% YoY and France is at 1.30%. The US is at 2.3% YoY. This is, in part, Rosengren’s point.

While the US economy is humming along at 2.3% YoY growth, Treasury is considering issuing 50- and 100-year bonds. Both will have huge duration and convexity risk.

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So, economic slowdowns beyond the (Atlantic) sea may spill over to the US.

President Trump needs a Dream Lover to enact his rate cuts. Otherwise, markets will be splishy-splashy.

US Cash Out Mortgage Refinancings Near Housing Bubble Highs Of 2005/2006 As Foreign Homebuyers Pull Out

What happens when home prices soar? We get boatloads of cash out refinancings where homeowners extract accumulated equity in their homes (to pay for things like vacations, college tuition for children, ventures like WUPHF, etc.)

Cash out refinancings, of course, lower the equity cushion that helps reduce default risk. And the US housing market is back near housing bubble highs of 2005 and 2006 (red line).

Will housing continue its meteoric rise (orange line)? Not if foreign homebuyers continue to retreat.

Recently, the National Association of Realtors reported that home buying in the US by non-resident foreign investors over the two-year period through March 2019 collapsed by 56%. It wasn’t just Chinese investors. It was foreign investors from all major countries, including from Canada and Mexico, that radically slashed their home buying in the US.

I wonder if Jerome Powell and other Fed types will discuss this at the KC Fed’s Jackson Hole annual conference?

Probably the same probability as seeing jackalopes in Jackson Hole.

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Come Dancing? US Treasury Considering Issuing 50- or 100-year Bonds As 30-Year Treasury Bond Yield Hits All-time Low (Negative Yielding Debt Growth Sends Gold Skyrocketing – 14 European Countries Have Negative 10-year Yields)

As the US House of Representatives (that controls the purse strings of the Federal government) escalates spending, the US Treasury has to issue more debt. In fact, the US has now exceeded the 100% debt to GDP that was first exceeded back in 2012 in the wake of the financial crisis.

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And with the US Treasury 30-year yield hitting all-time lows,

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Treasury is exploring longer-term maturities to refinance its debt and issue additional debt to cover the Federal budget deficit.

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(Bloomberg) — With interest rates on 30-year U.S. debt hitting all-time lows this week, the US government is once again considering whether to start borrowing for even longer.

The U.S. Treasury Department said Friday that it wants to know what investors think about the government potentially issuing 50-year or 100-year bonds, going way beyond the current three-decade maximum.

Well, US dollar swaps go out to 50 years, so 50-year Treasuries are not that much of a leap. But can we try 40 years first??

But given the unusual shape of the Treasury and Swap curves (both inverted in the short-term), is this Fed-caused disturbance in the yield curve or a signal of recession in the coming 5 years.

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And as global negative yielding debt explodes, so does gold prices.

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Its the same all over the world in terms of negative yields.

In fact, 14 European nations have negative 10-year yields.

But will the US come dancing at the negative Treasury yield party?

How Low Can They Go? Denmark’s Jyske Bank Introduces Ten-year, Fixed-rate Loan At -0.5% (Entire Danish Sovereign Curve Is Negative)

Denmark’s Jyske Bank has introduced a 10-year, fixed-rate loan at … -0.5%. As have other Danish lenders Realkredit Danmark, Totalkredit and Nordea Kredit.

Of course, the entire Danish sovereign yield curve is negative and their 10-year sovereign rate is -0.53%., essentially the same as the Jyske Bank 10-year loan rate.

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While this seems insane, Jyske Bank has only lost 50% since 2007 compared with Deutsche Bank that has lost considerably more since 2007.

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Not to mention that the Danish Central Bank has a bank rate of … -0.7%.

How low can they go?

An example of Danish housing imitating North Sea icebergs waiting for the next Titanic.