10 year breaks 2.36%
Big news this week was the 10yr treasury has traded through resistance at 2.36% – all the way down to 2.32%. This marks the lowest level since 2017, as bonds move forward and riskier assets around the world move lower. For those new to my commentary, this is a classic “flight to safety” or “risk off” scenario. Typically, bonds enjoy an inverse relationship with riskier investments like stocks. So here, stock values are moving lower in response to disappointing manufacturing data and China/US trade concerns while interest rates are moving lower as investors sell stocks and buy bonds. This leg down should eventually take 10s to 2.25%, before trying out the low-2.0% area. Effective Fed Funds rate is trading at 2.37%, so the 10yr is actually inverted with the rate at which banks borrow overnight from the Fed.
Feds Hold Their No-Move Policy
Federal Reserve officials were broadly comfortable with their make-no-moves posture on interest rates at their April 30- May 1 policy meeting. Many officials at the meeting said they expected a recent soft patch in inflation would be temporary, according to minutes released Wednesday. But several raised concerns about the implications for the economy if price pressures continued to defy expectations by holding at lower levels. Officials didn’t specifically raise the prospect of an interest-rate cut, according to the minutes. Investor speculation over a rate cut had increased in the run-up to the meeting. The threshold for the Fed to lower interest rates absent a broader deterioration in the economy “is high—higher than markets expect,” said Diane Swonk, chief economist at accounting firm Grant Thornton. At the same time, she added, the minutes show “the bar for a rate increase is even higher.” Several meeting participants expressed concern that inflation expectations could become fixed at uncomfortably low levels relative to the Fed’s 2% target “if inflation did not show signs of moving up over coming quarters,” according to the minutes.
New Home Sales Stink
Sales of new U.S. single family homes fell from near an 11- 1/2-year high in April as prices rebounded, but demand for housing remains underpinned by declining mortgage rates and a strengthening labor market. The Commerce Department said on Thursday new home sales dropped 6.9% to a seasonally adjusted annual rate of 673,000 units last month. March's sales pace was revised up to 723,000 units, the highest level since October 2007, from the previously reported 692,000 units. April's decline followed three straight monthly increases Economists polled by Reuters had forecast new home sales, which account for about 10% of housing market sales, would decrease 2.8% to a pace of 675,000 units in April. Sales increased 7.0% from a year ago. The median new house price increased 8.8% from a year ago to $342,200 in April, the highest level since December 2017. New home sales had in recent months outperformed other housing market indicators, including building permits, which had dropped for five straight months in April. New home sales are drawn from permits. Economists attributed the recent strength in new home sales to declining mortgage rates. The new housing market has not been severely constrained by an inventory shortage, which has crippled sales of previously owned homes.
Many American households remain financially fragile and uncertain about their retirement prospects despite a booming job market that is lifting wages, according to a Federal Reserve survey released Thursday. One quarter of working individuals say they have no retirement savings at all, the survey said, and 44% worry that their saving isn’t on track. Among younger workers, aged 18 to 29, 42% have nothing set aside, and only 26% believe they are adequately prepared for retirement. Households are also struggling to cover their day-to-day expenses, the survey found, with 17% saying they wouldn’t be able to pay all their bills during the month of the survey. In most cases, that means they expect to forgo making part of their rent, mortgage, credit card or utility payments. Roughly a quarter of adults skipped medical care in 2018 because they were unable to pay, and about 40% have unpaid debt from unexpected medical bills incurred last year. And almost 40% of Americans said they don’t have enough cash on hand to cover an unexpected $400 expense. In most cases, they said they would rely on credit-card balances or loans from family and friends.
Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.
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