Step! 2-year Treasury Yield Rises +10.5 Basis Points On Fed Tightening, 10Y-2Y Yield Curve Flattens

Another 10 basis point jumps in Treasury yields, this time at the 2-year Treasury Note.

The 10Y-2Y Treasury slope just flattened to +26 BPS.

Another step in rising mortgage rates!

Washington DC is anything but Harmony Hall.

Morning Update: Bankrate’s 30Y Mortgage Rate Rises Slightly To 5.29% (Housing Rents UP 16.4% YoY, Gasoline UP 92% Under Biden, Food UP 60%)

US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.

The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.

It hurts to be in the middle class under Biden.

Homebuyer Demand Outstrips Supply As Mortgage Rates Creep Up (Demand Has Grown 15X Faster Than Supply Since 2019 And The Entrance Of The Fed And Federal Stimulus)

https://www.redfin.com/news/housing-market-update-pending-sales-up-47pct-from-2019/According to Redfin, forty-four percent more homes are pending sale than at this time in 2019, but only 3% more homes recently hit the market—down from 12% growth over 2019 just 7 weeks prior. As a result of the severe imbalance between the number of homes for sale and the number of buyers, the pace of the market is picking up at a time when it typically slows. A third of homes are finding buyers within a week of hitting the market, up from 30.8% at the end of the summer. This week, we’re comparing today’s market with the pre-pandemic fall market of 2019 to highlight how hot the market remains, even as most measures are settling into typical seasonal patterns.

“Comparing today’s sales and new listings numbers to the 2019 levels helps to reveal the stark shortage of supply we are facing,” said Redfin Deputy Chief Economist Taylor Marr. “The boost of housing supply that came on the market during the summer has already faded away, even as demand tapers off as we expected it to in the fall. Relative to the last ‘typical’ fall of 2019, demand remains steady and strong thanks to the increased urgency many buyers have as mortgage rates inch up. Rising rates also make buyers more price sensitive, so homes that are priced right are increasingly likely to receive offers right away.”

Shortage of supply, indeed. It is a mystery to me why the supply of homes for sale is not matching the demand.

But what happened after 2019? COVID and the entrance of massive Federal Reserve and Federal government stimulus. With limited supply hitting the market, home prices soared with the government stimulus.

We are likely to see rising prices until Federal Stimulypto stops or at least slows.

Fed’s Ability to Set Rates Floor Is Weakening on Cash Deluge (“Charming” Powell Had At Least 350 Meetings, Dinners Or Phone Calls With Members Of Congress)

Powell and The Fed’s policies have veered from their mandate requiring Chairman Powell to meet 350 times with Congress to sell The Fed’s policies.

Bloomberg) — The Federal Reserve’s floor for overnight funding markets is proving to be no match for the deluge of cash. 

Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% — the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end. The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.

Still, usage of the tool climbed to a record $1.136 trillion on Monday, eclipsing the previous high of $1.116 trillion on Aug. 18. 

Demand for the so-called RRP facility has surged as a flood of dollars threatens to overwhelm funding markets. That’s in part a result of the central bank’s long-standing asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. As a result, liquidity has been swelling, especially as the Treasury cuts supply to create more borrowing room under the debt ceiling.

The pressure pushing down overnight rates toward zero is proving a major headache for money-market funds. It hampers their ability to invest profitably, and can lead to further disruptions as they begin to waive fees to avoid passing on negative rates to shareholders. A number of firms including Vanguard Group shut down prime money-market funds last year after struggling to cover operating costs in the low-interest-rate environment.

Yes, overnight rates such as the US SOFR rate, are near zero.

Powell’s Charm Offensive in Congress Positions Him to Keep Job

Perhaps that is why Federal Reserve Chair Jerome Powell is acting as a lobbyist with Congress for The Fed’s nontraditional approach to monetary policy.

(Bloomberg) Since he took the helm of the Fed in February 2018, through June of this year, he’s held at least 350 meetings, dinners or phone calls with members of Congress, according to his monthly calendars. That’s almost nine per month, and many of those included more than one lawmaker. The tally doesn’t count at least 16 appearances as chair before numerous congressional committees.

Well, the stock market has zoomed-up since Bernanke and The Fed adopted zero-interest rate (ZIRP) policies and the now famous quantitative easing (QE) policies in late 2008.

Congress member Alexandria Ocasio-Cortez asked Fed Chair Powell about the Fed helping with US unemployment. We are already at zero rates (on the short-end), and Congress should look at their policies on why labor force participation is slow to recover from the Covid epidemic.

Powell is sounding more and more like Parks and Recreation’s Tom Haverford in terms of schmoozing Congress for support.

Update: The Mises Stationarity Index is flashing “BUBBLE.”

The Mises Stationarity Index is different than the Shiller CAPE index, which is showing equities as being overpriced, but not yet in dot.com bubble zone.