DOW Down 160 Points This Morning
Happy Monday! Markets were flat on Friday with the 10-year yield opening around 2.699% and closing around 2.704%. The Dow was ended with the index down 6 points on the day. MBS 4.0% worsened by around 3 bps.
This morning the Dow lost 160 points and is currently down around 100 points with concerns on the government shutdown and no indication of a potential agreement. Also impacting the market are reports showing the Chinese economy is slowing down with December exports and imports dropping unexpectedly. This raises additional concerns with the worlds second-largest economy and future trade talks between the U.S. and China.
The stock run has driven the 10-year yield to around 2.69% this morning (last Monday's level). Continued point of interest to watch with the 10-year yield is if it stays below 2.72% and when the government reopens if the correction resumes. Key levels to watch are 2.75% with a ceiling around 2.82%, and a floor for the yield would be around 2.62% to 2.60%.
On Friday the 10-year entered the death cross, when the 50-day moving average crosses below the 200-day moving average. This is typically an indicator for price increasing and conversely the yield continuing to fall. Bond yields move inversely to prices so when there is high demand in the 10-year and prices are going up, the yield moves lower. What is uncertain with this situation is the safe-haven runs created by the shutdown and global concerns.
The government shutdown is impacting a number of economic reports this week. Two key reports that will not be released are Retail Sales and New Construction starts. One of the key reports that will be released is Consumer Sentiment on Friday.
CONSULTATIVE TOTAL COST ANALYSIS with some background data. (TCAs updated 1/7)
Seller concessions with used within discount points to buy down interest rate: Various reports and articles have indicated over 1/3 of homes on the market have had a price decrease.
TCA with 30-year FRM price reduction versus concessions allocated to discounts points (approx 1% discount will lower rate by .25% in conventional and .25 - .375+% in government): click here
Seller concessions where 2% is used by borrower within discount points -- TCA includes ARMs which have a deeper rate benefit at 2% versus FRM: click here
Cost of waiting analysis with escalated, worsening rates: Federal Reserve projected to increase fed fund rate twice in 2019.
Cost of waiting analysis include increase in home sale prices: Various reports have indicated national home value increase of 4.5%.
TCA with 30-year FRM at three, six and twelve month future periods: click here.
Borrower using discount points to buy down interest rate: TCA with 30-year FRM at PAR; buyer paid 1% discount; buyer paid 2% discount: click here
Rent versus own analysis including worsening rates and increasing rent click here. Year over year rent increase is around 1.0% according to various reports.
The likelihood of rates improving long-term are slight based on current Federal Reserve policy and higher Treasury issuance necessary to cover cost of U.S. tax cuts and potential stimulus programs. There may be corrections at different periods but the general trend will be higher rates.
Have a great day!