Investors Pour Cash Into Mortgage ETFs (Safety Net, A Touch Of Yield [9.15% Versus 10Y Treasury Yield Of 2.66%])

A touch of yield? Like in 2006-2007??

(Bloomberg) — Investors on the hunt for both safety and a touch of yield have made a product stuffed with mortgage-backed securities the third-most popular exchange-traded fund this year.

The $15 billion iShares MBS ETF, or MBB, has taken in more than $3 billion this year, according to data compiled by Bloomberg. Buyers have added about $1.5 billion in February alone, putting it on track to be the largest month of inflows since the fund started in 2007.

Agency mortgages are a sweet spot for investors willing to take on just a little bit more risk than offered by Treasuries, getting more yield than the government debt without the credit risk that goes alongside corporate bonds. Securities backed by home loans have also benefited from the Federal Reserve’s decision to hold off on interest-rate increases, as higher borrowing costs discourage refinancing and increase the duration of these securities.

“Even though something like HYG may seem more attractive for yield hunters, mortgages are a way to get a nice coupon while still being cautious,” said Mohit Bajaj, director of exchange-traded funds at WallachBeth Capital, referring to the iShares iBoxx High Yield Corporate Bond ETF by its stock ticker. “It’s about finding yield with safety.”

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Like Bill Gross’ Janus-Henderson bond fund, the iShares Mortgage ETF has performed relatively poorly.

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Partly, investors are running for cover. But some like the iShares Mortgage ETF dividend yield of 9.15%. Especially with the 10-year Treasury Note yielding only 2.66%.

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Retail Inferno! U.S. Retail Sales Ex Auto Fall the Most Since Great Recession (Brainard Supports Ending Fed Balance Sheet Shrinking)

It was truly a “Retail Inferno!”

US Retail sales fell MoM 1.2% in December and -1.8% Ex Auto.

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Here is a graph showing the tanking of December retail sales.

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And we if take out auto sales …. the worst plunge since The Great Recession.

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Meanwhile, Federal Reserve Governor Lael Brainard indicated she favors ending the process of normalizing the central bank’s balance sheet later this year.

“That balance-sheet normalization process probably should come to an end later this year,” she said Thursday in an interview on CNBC.

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Ya think Lael? (second from right)

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Livin’ On A Prayer: Average US Household Net Worth Is A Staggering $692,100 As Of 2016! (Median Only $97,300)

As 1980’s big-hair, New Jersey band Bon Jovi sang, US households are “Living on a Prayer.” Or The Federal Reserve-created massive asset bubble.

As of 2016, the mean net worth of US households was a whopping $692,000! And the median is $97,300.

Quite a disparity.

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Of course, The Federal Reserves zero-interest rate policy (ZIRP) and quantitative easing (QE) helped created massive asset bubbles that have helped households to historic high net worths.

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Housing is one of the recipients of The Fed’s quantitative distortion (QD).

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One indicator? Home prices are still growing almost twice as fast as average hourly earnings.

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These are no “Tiny Bubbles”.

Gold anyone?

But YUGE bubbles. Hence, American households are living on a prayer that the massive bubbles don’t burst.

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On a side note, I used to live in Rumson NJ and Jon Bon Jovi used to run by my house on the weekends (sans the big hair).

 

Three-Month Libor Fixing Falls by the Most Since May 2009 (Signal That The Fed Might CUT Their Target Rate?)

One of the world’s most important borrowing benchmarks staged its biggest one-day decline in a decade on Thursday.

The three-month London interbank offered rate for dollars sank 4.063 basis points to 2.697 percent, the largest one-day slide since May 2009. The move may reflect a benchmark that’s making up ground following a repricing of short-end Treasuries and associated instruments in the wake of the Federal Reserve’s dovish pivot in recent weeks.

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The 3-month LOIS spread (3-month Libor – Overnight Indexed Swap rate) has been receding … again as of Feb 5th (Libor rates on Bloomberg as not updating on Feb 7).

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Typically, Libor rates rise ahead of Fed rate hikes. While the “catching up” explanation is likely, it is also possible that Libor is signalling a cut in the Fed Funds rate coming up.

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The stock market is pleading for SLOWDOWN in monetary normalization.

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Yes, it is possible that Libor is signalling that The Fed will try to give more oxygen to financial markets.

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