Bad Santa! 10Y Treasury Yields Jump Above 1.60% as Expectation Of Fed Hikes Grows (Mortgage Rates Expected To Rise)

Happy New Year! And Treasuries are off to fast start with investors bailing on Treasuries and buying stocks. AND the expectation that The Fed will raise rates 3 times this year.

The 10-year Treasury Note yield rose above 1.60% this morning.

And the US Treasury 10Y-2Y curve rose to 80.601 basis points.

Fed Funds Futures data is showing 3 rates hikes in 2022. May, September and December.

The Fed Dots project is definitely showing an upward trend in the Fed Funds Target rate with FOMC member forecasting the median target rate to be above 2% by 2024.

Of course, Fed reverse repo activity grew to an all-time high (but it is expected to pare-back).

How about mortgage rates? I expect mortgages rates to rise over 2022 as the 10-year Treasury Note rises.

While The Fed has been acting like Santa Claus with monetary easing since 2008, they are predicted to act like Bad Santas in 2022.

6 months of telling inflation in transitory stories. Now you know why.

What do you say to the Fed Open Market Committee that has resisted raising rates while inflation is the highest in 40 years?

Cautionary note: The Fed is likely to protect economic growth and ignore inflation. So I expect FOMC will continue to reinvest prepayments into Treasury and MBS, pro-rata to the current portfolio.

Freddie Mac Mortgage Rate Rises To 3.12%, REAL Mortgage Rate At -3.689% (REAL Home Price Growth At 14.12% While REAL Wage Growth At -1.94%)

The Freddie Mac 30-year mortgage commitment rate rose to 3.12%. But once we subtract the gut-wrenching inflation rate, the REAL 30-year mortgage rate is -3.689%.

The nominal Freddie Mac 30-year commitment rate rose to 3.12% which is still lower than 3.18% back on April 1, 2021 after surge in rates following Biden’s taking the office of Presidency in January.

Meanwhile, the REAL Case-Shiller National home price index (CS National YoY – CPI YoY) is growing at the fastest rate in history. Great if you already own a home, but lethal if you are renting and want to move to homeownership.

Meanwhile, REAL wage growth is at -1.94% YoY.

Well, Chairman Powell and The Gang failed to raise the Fed Funds Target Rate yet again, but let us know that they will tighten someday soon. The Fed Funds Futures are signalling a rate hike at the June 2022 meeting and another at the November meeting.

While The Fed couldn’t care less about the Taylor Rule, it is still interesting to note just how out of touch The Fed FOMC is with reality. The Taylor Rule indicates that their target rate should be 16.94% rather than the current target rate of 0.25%.

Keeping the target rate unchanged in the face of gut-wrenching inflation is a bold strategy, Cotton.

Let’s see if it pays off.

Psst! US Inflation Is REALLY >11% YoY (Not The Stated 6.9% YoY)

Earlier today I wrote about the horrible November Consumer Price Index (CPI) print of 6.9% YoY.

But that 6.9% YoY is very misleading because of the strange way the Bureau of Labor Statistics measures the largest asset in most households’ expenditures: housing.

The BLS measures inflation in housing using the Shelter measurement. Which was only 3.88% YoY. The problem is that the Case-Shiller National Home Price Index was 19.52% in its last reading. That is quite a discrepancy.

So, if we substitute the Case-Shiller National home price index for the CPI Shelter, we get an inflation rate of greater than 11%.

And with the Zillow Rent for all homes index growing at 11.2%, this feels more like we are being hit over the head with. Or like trying to eat raw oyster stew … when the oyster fight back.

Here is a video of The Federal Reserve and the Biden Administration trying to control inflation.

S&P 500 REAL Earnings Yield At -2.33% While REAL Wage Growth At -1.43% (REAL 30Y Mortgage Rate At -3.11%) “Weird, Wacky Stuff!”

As Parks and Recreation’s Martin Housely said, “Weird, wacky stuff.”

We now have the S&P 500 REAL earnings yield at -2.33%.

REAL US average hourly wage growth is at -1.43% and the REAL 30-year mortgage rate is at -3.11%.

The cause of this weird and wacky economic stuff? How about the surge in M1 Money and The Fed Balance Sheet?

I can almost see Fed Chair Jerome Powell imitating Martin Housely and saying “Weird, wacky stuff” in his testimony before Congress.

Fed Talk,Talk! Mortgage Applications SURGE 56% WoW As Treasury Yields Tank (Purchase Apps Spike 28% WoW)

Despite the “Talk, Talk” from The Federal Reserve about balance sheet taper and rate “normalization,” we actually saw the 10-year Treasury yield fall from 1.6651% on 11/23/2021 to 1.343 on 12/3/2021. While the 30-year mortgage rate only fell from 3.31% to 3.3%, it is the SIGNAL that The Fed is sending that people should refinance their mortgages ASAP.

You can see the rise in mortgage refinancing applications of 56% week-over-week (WoW) (white line) with the drop in the 10-year Treasury yield (blue line) despite the relatively small drop in the Mortgage Bankers Association (MBA) tiny drop in their 30-year mortgage rate index.

Ditto for the MBA mortgage purchase application index. The drop in the US Treasury yield (blue line) resulted in a 28% WoW increase in mortgage purchase applications.

Here is the table of MBA data for the week of 12/03.

Please note that the 10-year Treasury yield have jumped since 12/03 indicating that mortgage application activity for the week of 12/10 will be lower.

Here is the MOVE bond volatility index and the US Treasury 10-yield chart. Can you spot the COVID outbreak??

Here is a video of Fed Chair Jay Powell doing “Talk, talk” about tapering.

Powell, Yellen Say They Underestimated Inflation And Supply Snarls (M1 Money Grew At 369% With Rates Near Zero Since COVID And They Didn’t See Inflation Coming???)

The Dream Team (Fed Chair Jay Powell and Treasury Secretary Janet Yellen) just can’t believe that inflation struck even after M1 Money Stock increased by 369% from March 2020 to today while interest rates remained near zero.

From The Hill: Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen on Wednesday said they underestimated how quickly the U.S. economy would rebound from the COVID-19 recession and strain supply chains.

During a Wednesday hearing before the House Financial Services Committee, the top two U.S. economic policymakers acknowledged that high inflation has risen higher and lingered much longer than they expected.

“We understood demand would be strong,” Powell said. “We didn’t understand [the] significant problems of the supply side.”

Both Yellen and Powell said substantial fiscal and monetary stimulus played a role in stoking the higher demand that fueled inflation, but they called it a challenging side-effect of an otherwise fast recovery.

Seriously? The Fed and the Federal government dumped trillions of dollars into an economic system and didn’t think there would be negative consequences??

Look at the surge in M1 Money Stock at the same time asset-backed commercial paper rates are 0.08%. That is, about 1/3rd The Fed Funds Target rate (upper bound). None of this concerned The Dream Team?

An example of what The Dream Team didn’t see happening was the explosion of home prices. Home price growth was about 4% YoY prior to COVID, and is now 19.51% YoY.

Now we have the US Treasury Actives curve inverting like the US Dollar Swaps curve after 20 years.

Here is a composite photo of Jay Powell and Janet Yellen (to save space). Here is a video of Powell/Yellen composite trying to control inflation.

US Mortgage Refinancing Applications Index PLUNGES 40.3% WoW (Purchase Apps Index Plunges 30.4%)

Its that time of year for mortgage purchases applications! Purchase applications usually decline during December and start to rise after the beginning of the year.

Mortgage purchase applications (white line) dropped -30.4% from the previous week, not usual for December. But what is surprising is the drop in REFINANCING applications: down -40.3% from the previous week.

30-year mortgage rates rose 2.16% from the previous week.

But between Omicron (or as the French say, “Oh! Macron!”) and The Federal Reserve, there is a good chance that mortgage rates will fall this week putting a quick end to refi application plunge.

Purchase applications? Nope, it is that time of the season when purchase applications drop like a rock.

Calamity Jay? Powell Weighs Faster Tapering of Bond Buys Amid High Inflation (Market Pukes, Dow Drops 500 Points, West Texas Crude Drops 6.56%)

Calamity Jay Powell testified in front of the US Senate Banking Committee. He rattled markets by going hawkish about inflation, then gave The Fed an out by playing the COVID CARD (the latest Omicron Variant). Aka, the DEATH CARD.

Federal Reserve Chair Jerome Powell said the strong U.S. economy and elevated inflation could warrant ending the central bank’s asset purchases sooner than planned next year, though the new omicron strain of Covid-19 poses a fresh risk to the outlook.

“It is appropriate, I think, for us to discuss at out next meeting, which is in a couple of weeks, whether it will be appropriate to wrap up our purchases a few months earlier,” Powell said Tuesday. “In those two weeks we are going to get more data and learn more about the new variant.”

Powell made the comment in response to questions during a Senate Banking Committee hearing in Washington. The Fed is currently scheduled to complete its asset-purchase program in mid-2022 under a plan announced at the start of November; policy makers next meet Dec. 14-15, where they could make a decision to accelerate the tapering.

On his remarks, the stock market puked.

Well, if Powell followed the Taylor Rule, he would really scare Congress with raising The Fed Funds Target Rate to 14.94% based on an inflation rate of 6.20%.

And then we have HOUSE price inflation of near 20%. But The Fed doesn’t consider than inflation.

Then we have oil prices retreating -4.59%. Not, not due to Biden releasing the National Petroleum Reserve (NPR). Rather it is FEAR of The Fed raising rates and a corresponding slowdown in economic growth.

Calamity Jay Powell.

US Home Prices “Slow” To +19.51% YoY In September (Phoenix AZ Sizzles At +33.1%, Chicago Slowest At 11.8%)

When I told Benzinga’s Phil Hall in an interview a while back that I thought US home price growth would slow, I didn’t consider the never-ending COVID epidemic (now with the Omicron Variant taking the stage. But at least the CoreLogic Case-Shiller National home price index (HPI) “slowed” in September from +19.84% to +19.51%.

Once again, low available inventory of houses for sale coupled with outlandish Fed stimulus has resulted in a housing crisis where home price growth (+19.51%) exceeds hourly wage growth (+5.76%) by almost 4x.

Where are all the home prices above 10% YoY? Every one of the 20 metro areas covered by Case-Shiller. Phoenix AZ leads at +33.1%. Chicago IL is the “slowest” at 11.8%.

Although Columbus OH is the growth hub of the state, Case-Shiller only reports Cleveland. So here is Columbus’s all-transactions home price growth for Q3: +16.2% YoY placing Columbus at the top of the midwest metro areas of Detroit, Chicago, Minneapolis and Cleveland.

With the latest Omicron Variation (sounds like a Star Trek TV show episode), I will bet that The Fed will stay a little longer and keep rates low, leading to home price growth (with limited available inventory) to continue to grow at double digit speeds.

The Fed is printing SOOOO much money that the dollar should have a double eagle on it.

U.S. Pending Home Sales Rebound (+7.5% MoM) To Highest Level Of The Year, BUT 5th Straight Month Of Negative YoY)

A forward-looking gauge of U.S. home purchases rebounded in October to a 10-month high, signaling steady housing demand despite growing affordability concerns among many prospective buyers.

The National Association of Realtors’ index of pending home sales increased 7.5% from a month earlier to 125.2, according to data released Monday. The median estimate in a Bloomberg survey of economists called for a 1% advance.

But it is the fifth straight month of year-over-year declines.

Low mortgage rates and solid job growth have supported housing demand this year as pandemic-weary buyers seek more spacious accommodations. Existing home sales are on track to exceed 6 million in 2021, which would be the strongest in 15 years, Lawrence Yun, NAR’s chief economist, said.

Yes, humongous stimulus from The Federal Reserve will help push existing home sales to exceed 6 million in 2021.

Still, competition over a scant number of listings — particularly on the lower, more affordable end of the resale market — has pushed prices out of reach for many prospective buyers. Builders have struggled to fill the void as supply-chain delays and labor shortages upend construction schedules, exacerbating the inventory crunch.

Yes, inventory of homes available for sale is almost 1/3rd of the homes available in 2010.

Ten years after ... and we have progressively less inventory available.