Market Update
We had over $113 billion that the Treasury auctioned yesterday and today and so those went well but that’s a lot of supply coming to the market. Next we have the Feds meeting today and tomorrow with their announcement around 11am on Wednesday. There’s almost a zero percent chance of them raising short term rates but like always it’s what they say in their announcement that can move the markets up or down. Now remember back during the mortgage meltdown when the Feds came up with “QE” (Quantitative Easing) where they couldn’t lower short term rates any less as they were already close to zero so they needed to do something to get the economy back on track so they came up with “QE”. This was the Feds buying large quantities of mortgage backed securities/bonds and treasuries which led to lower rates directly on mortgages, car loans, business loans, credit cards, etc.
So when the Feds stopped QE a few years ago they had well over a trillion dollars of these securities and if they started selling those securities then rates would have shot up so they initially just reinvested those securities that matured (principal) and then they started to gradually sell off bonds and treasuries each month which is why rates/yields have gone up the past couple of years. This part was referred to as “QT” or Quantitative tightening.Why am I bringing this up? Because there are some rumors that the Feds may announce cutting back on QT and if they did that then you would see both stock and bonds/treasuries rally with mortgage rates being one of the benefactors. Of course this is just a rumor at this point but the mere fact it is out there should be telling you that the lack of inflation is real and there is a slowdown occurring (how much is debatable). I’m not really sold at this point that the Feds would make this announcement now but if data continues to come in soft and inflation subdued then the chances increases down the road.
Wednesday is the ADP employment report (about 170k jobs created expected), Thursday is the Employment Cost Index which is an inflation report and one of the favs of the Feds and then Friday is the big as always Unemployment report where 160k new jobs are forecasted along with hourly earnings up by 0.2%, with unemployment rate staying at 3.9%. The danger in the employment report is that there is a chance that these numbers come in below what is forecasted which normally would be great for rates but the markets may dismiss because of the bad weather in most parts of the country, the government shutdown and the huge previous numbers in November.Please feel free to email or call me with your confidential scenario.
Mitch Lichterman
Lender Partner
Direct:310-478-4999
Email:Mitch@TargetRate.com
NLMS #274609
