https://youtu.be/gchIC9xNux0
Hi, it’s Bill Bodnar from the Mortgage Market Guide, and thanks for tuning in to our weekly recap.
So up on the screen some good news came out on Thursday.
That mortgage rates had their biggest one-week drop in a decade, and that coincided with that breakout. You know we've been talking about how the 10-year note has seen support at 260.
Goodness, when the yield finally punched through 260, we've seen to 230s in the middle of the week. Pretty remarkable. And it's something we've seen over and over when these barriers are broken—how bonds can really take off.
So that's what happened this past week, so really interesting. I think you know some of the fuel to this decline in rates, and raising prices, was this economic slowdown that's not only a concern abroad. It’s well documented what's going on in Europe and negative yields in Germany's 10-year bonus is yielding you know beneath zero--which is just really remarkable.
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But you know some of that slowdown was even kind of showing here in the U.S. And so what was the real catalyst was that in the middle of the week Steven Moore, who's been nominated to the Federal Reserve. He said if he gets on the Fed they’re going to vote to cut rates by 50 basis points, which is pretty remarkable, and a real departure from where the Fed was just last year.
You may recall back in the fall there was a lot of volatility right. Where the stock mark was declining significantly, and the bond market was kind of rallying a little bit. Because the Fed said, “Hey, we're going to hike rates three times in 2019, regardless of what the data shows.”
And so boy did they back off of that. Not only are they not hiking rates in 2019, but they came out and said that there's a 75% chance they will actually cut rates this year, which is just remarkable. And just shows the change how things changing while you need to be watching this stuff closely because it does move.
We were having a tough time at these ceilings; we broke out above it and this doesn't look like much in a two-year chart, but that's a pretty material price move. That's why we have seen the sharpest decline in rates in a decade.
Because it was a breakout above a ceiling, prices are at levels we haven't seen in 14 months, which is beautiful. There's a lot of complacency, especially in the bond market, but that can change quickly. It's almost like a rubber band being wound tight, eventually it kind of snaps.
So we need to watch, especially after our rally in bond market.
With an extended bond market rally, there can be a turnaround, and it can reverse quickly, so there are some headline risk events happening this week that you need to be reminded of. But you need to be thinking that we’ve got retail sales Monday. So right out
of the gate retail sales comes up, but then you can see here up on the screen we have the Bureau of Labor Statistics. They report the jobs report next Friday.
Now the previous jobs report was a stinker, only 20,000 jobs created. You could probably get a good bet that will be upgraded, or it will be revised higher. But there are some other readings within the report that can create a surprise and negative surprise that bonds can react: One is hourly earnings are currently running at three to four percent year-over-year, the highest in a decade.
If that ticks up higher because of this tight labor market we're seeing, you know the bond market may react negatively to that, so we need to watch that one carefully.
