Inversion! US Treasury 10Y-5Y Curve Inverts As Investors Flee Treasury Market As Mortgage Rates Hit 4.42%

The US Treasury 10Y-5Y curve (aka, the belly of the Treasury beast) has inverted.

It is more about the 10Y Treasury yield rising more slowly than the 5Y yield.

Freddie Mac’s 30Y mortgage commitment rate rose to 4.42%.

Today’s initial jobless claims came in at 187k, the lowest in modern history!! Overheated much?

More fuel on The Fed Fire to raise rates above 0.50%.

Fixed-income trading floors:

Fed Expected To Raise Rate 8+ Times Over Next 12 Months Leading To Surge In 2-year Treasury Yield And Mortgage Rates (Powell’s Money Gun To Slow Rate Of Fire)

This is the chart from hell as The Fed is expected to take interest rates higher.

At least mortgage rates are down slightly today.

With 8+ rate hikes forecast over the next twelve months. Meaning that Powell’s Fed money gun is going to slow.

Can You Spot The Fed’s Policy Errors? The Fed And Fannie/Freddie’s Demise After 3 Fed Policy Errors (We Are Now In PE5!)

The Federal Reserve is not mentioned in the movies “The Big Short” or “Margin Call”, but The Fed’s policy errors played a big role in the demise of Fannie Mae’s and Freddie Mac’s equity prices.

Here is a chart of The Fed’s many policies errors. Let’s start with The Fed lowering rates too fast around the 2001 recession. They pushed their target rate from 6.5% in December 2000 down to 1.75% after one year and then down to 1% (PE1). As home price growth accelerated, The Fed engaged in their second policy error — raising rates too fast resulting in a dramatic cooling of home price growth. Then came Policy Error 3: the dropping of The Fed Funds Target rate from 5.25% in September 2007 to an eventual 0.25% in December 2008.

With the election of President Obama, The Fed engaged in Policy Error 4: keeping The Fed Funds Target rate too low for too long, combined with their massive asset purchase programs (QE).

Finally, The Fed (under Yellen) finally raised The Fed’s target rate ONCE under Obama, but started raising rates once Trump was elected. The Fed also slowed their QE under Trump which as called “Fed policy NORMALIZATION.” Then COVID struck and The Fed engaged in Policy Error 5: keeping rates too low for too long … again while massively expanding their balance sheet.

Fannie Mae and Freddie Mac, the DC mortgage giants were done in by The Fed’s whipsaw Policy Error machine.

Now we are embarking on PE 5: Powell and The Fed Gang not raising rates but signalling that they will. Like the play “Waiting for Godot.”

Slowing! Mortgage Purchase Applications Down 2% From Previous Week, Down 8% From Same Week Last Year (Bankrate’s 30Y Mortgage Rate Rises To 4.46%)

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 11, 2022.

The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 8 percent lower than the same week one year ago.

The Refinance Index decreased 3 percent from the previous week and was 49 percent lower than the same week one year ago.

Bankrate’s 30-year mortgage rate has surged to 4.46%.

Here is a photo of alligators in Great Falls, Virginia, up-river from Washington DC. They are likely congregating for the Fed Open Market Committee (FOMC) announcement today.

US Inflation Soars To 7.9% YoY In February As Gasoline Prices Climb 38% YoY, Food Rises 7.9% YoY)

As expected, US inflation soared to 7.9% YoY in February as gasoline prices continue climbing.

US rent inflation (owner’s equivalent rent of residence YoY) surged to 4.30%. However, Zillow’s rent index last month was 15.93% YoY.

But if we look at US Monthly Rent YoY, we see that rents are climbing at a 17.6% rate.

Energy costs soared in February YoY. Gasoline was up 38%. Fuel Oil was up 43.6%. Food was up 7.9%.

Volatility (AVAT) rages in the energy sector.

There are still 7 rate hikes in the cards from The Federal Reserve.

Gold has been climbing as Russia invades Ukraine. Cryptos Bitcoin and Ethereum are steady, even as the Biden Administration issues an executive order to “study” cryptocurrencies.

MBA Mortgage Purchase Applications Rise 11%, Refi Applications Rise 9% From Previous Week, But Refi Apps Still Down 50% From Same Week Last Year (10Y-2Y Treasury Curve Continues To Flatten)

The mayhem caused by the Russian invasion of Ukraine is helping drive down interest rates … for the time being … and this is helping push down mortgage rates and increase mortgage applications.

Mortgage applications increased 8.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 4, 2022.

The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 7 percent lower than the same week one year ago.

The Refinance Index increased 9 percent from the previous week and was 50 percent lower than the same week one year ago. Diane Olick at CNBC has the hilarious headline “Brief drop in mortgage rates sparks mini refinance boom.” The slight rise in refi applications from the previous week is more of a firecracker going off than a boom given that refi apps are still down 50% from the same week last year.

Bear in mind that the US Treasury 10-year yield is up since the MBA’s reporting week ended on March 4, 2022. So, look for Olick’s mini-refi boom to end as quickly as it started.

Here is the rest of the MBA story.

The MBA Mortgage Purchase applications index typically peaks in mid-to-late April, so we still have another month (seasonality) until purchase applications begin declining again.

The US Treasury 10Y-2Y curve continues to flatten and is the worst curve recovery in modern history.

The general rise in US mortgage rates is more closely tied to expectations of Fed rate increases than Fed Agency MBS holdings.

Not, Not, Not! Mortgage Purchase Applications Declined 9% YoY For Week Ending February 25, 2022 (Refi Applications Drop 56% YoY)

While Corelogic’s January home price index was hot, hot, hot (UP 19.1% YoY), today’s mortgage applications index for the week ending February 25, 2022 was not, not, not.

Mortgage applications decreased 0.71 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 25, 2022.

The seasonally adjusted Purchase Index decreased 1.76 percent from one week earlier. The unadjusted Purchase Index increased 1.16 percent compared with the previous week and was 9 percent lower than the same week one year ago.

The Refinance Index increased 1 percent from the previous week and was 56 percent lower than the same week one year ago.

Yes, the mortgage industry is going through some difficult times. But not as difficult as trying to understand Biden’s State of the Union address: “Putin may circle Kyiv with tanks, but he’ll never gain the hearts and souls of the Iranian people.” Huh?

And then Biden’s closing remark was “Go get ’em!” What? Go get whom? The Russians? Inflation? Trump supporters?? I feel like Biden thought the SOTU was the annual Army-Navy football game.

My State Of The Union Rebuttal: WTI Crude UP 126% Since Jan 1, Gasoline Prices UP 61% (GDP Near Zero, Inflation Still Rising)

President Biden is giving his first State of the Union address tonight with rebuttals from Iowa Governor Kim Reynolds and The Squad’s Rashida Talib (yes, a Republican is giving the rebuttal to Biden’s SOTU speech, and a Democrat is rebutting a Democrat President??)

Let’s look at a short list of Biden’s economic triumphs. I will ignore Biden’s catastrophic Afghanistan withdrawal and his weak response to the Russian invasion of Ukraine.

If you want higher oil and gasoline prices, Biden is a tremendous success.

If you like rampant government spending, then Biden is your man. Home price growth is up to 18.84%, making housing unaffordable for millions of American families.

Wages? They are up, but declining after 7.5% YoY inflation. And GDP is almost zero.

Biden can only point to rising average hourly wages, but not REAL average hourly wages.

Inflation? Highest in 40 years, due to excessive Federal spending, The Fed’s crazy printing and Biden’s energy mandates.

I am scratching my head to think of accomplishments for Biden to mention in the SOTU. But I am sure that he will say something positive. Otherwise, Biden’s SOTU speech should be the Billy Preston song “Nothing from Nothing.“

Weekend Update: US Q1 GDP Falls To 0.6%, Treasury 10Y-2Y Curve Flattens and Commodity Prices UP 52% Under Biden (Ports Still Clogged)

Russia is still attacking Ukraine and I am still seeing stories about actor/comedian Bob Saget’s cause of death. So now for something completely different.

After last week’s Personal Consumption Expenditures, GDP and new home sales reports, the Atlanta Fed’s GDPNow real GDP estimate for Q1 shriveled to 0.6%.

The US Treasury yield curve? It is flattening rapidly as it typically does prior to a recession.

Commodities? Commodity prices are UP 52% under Biden. And that includes prices dropping slightly from 2/24 to 2/25.

And then there is average port delays in US ports. Hey, I thought Mayor Pete the port Czar was supposed to unclog the ports!

Hopefully this coming week will be better! Particularly for the Ukrainian people.

Elmer Fed? US PCE Price Growth Hits 5.2%, Highest Since Mid-1983 (Taylor Rule Suggests Target Rate of 13.35%)

And this doesn’t include the inflation in prices caused by the Russian invasion of Ukraine. Yet.

US Personal Consumption Expenditures (PCE) price index rose by 5.2% in January, the fastest rate since mid-1983.

With CPI inflation at 7.5% YoY, the Taylor Rule suggests a Fed Funds target rate of 13.35%, higher than the current rate of 0.25%. Overstimulated much??

Let’s see if The Fed actually goes hunting inflation.

Let’s see if inflation makes The Fed dance!