Tag Archives: interest rates

Bank Sector In Peril As Refinance Activity Crashes Amid Rising Rates

To visualize the impact the recent spike in mortgage rates is having on the US housing market in general, and home refinancing activity in particular…

https://www.zerohedge.com/sites/default/files/inline-images/rates%20black%20knight.jpg?itok=0gskR295

… look no further than this recent chart from the January Mortgage Monitor slidepack by Black Knight: it shows the recent collapse of the refi market using the recent jump in 30Y and mortgage rates.

https://www.zerohedge.com/sites/default/files/inline-images/refi%20candidates%2010y.jpg?itok=xLHSMeR1

As Black Knight writes, it looks at the – quite dramatic – effect the mortgage rate rise has had on the population of borrowers who could both likely qualify for and have interest rate incentive to refinance. It finds that the number of potential refinance candidates has tumbled to the lowest since December 2008.

Some more details from the source:

  • the recent spike in interest rates cut the population of borrowers with an interest rate incentive to refinance by nearly 40 percent in 40 days
    • Virtually all of the decline in potential refinance candidates was among 2009 and later vintages; Fewer than 100K traditional refinance candidates (720+ credit score, <80 percent loan-to-value (LTV) ratio) remain in 2012 and later vintages
  • Approximately 1.4 million borrowers lost the interest rate incentive to refinance in just the first six weeks of 2018
  • 2.65 million potential candidates could still both benefit from and likely qualify for a refinance at today’s rates
  • That is the smallest this population has been since late 2008, prior to the initial decline in rates during the recession
  • Though the population is only 10 percent off its February 2017 mark, rate/term refinance production could see a more significant impact than this might suggest due to increasing burnout in the market
  • A corresponding drop in the average credit score of refinance originations is typically observed when rates rise

To be sure, it is hardly a shock that after a decade of record low rates, the current rise in rates means a collapse in refi activity: after all anyone who could, and would, refinance, already has, while the universe of those who have yet to take advantage of lower rates and are eligible to do so, has collapsed.

Which is bad news not only for homeowners, but also for the banks, whose refi pipeline – a steady source of income and easy profit – is about to vaporize.

Here are some more details from the WSJ: last year, 37% of mortgage-origination volume was because of refinancings, according to industry research group Inside Mortgage Finance. That is the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. In 2012, refinancings were 72% of originations.

While purchase activity has climbed steadily from a post-financial-crisis nadir in 2011, growth in 2017 wasn’t enough to offset a $366 billion decline in refinancing activity. The result: The overall mortgage market fell around 12%, to $1.8 trillion, according to Inside Mortgage Finance.

“The market has just gotten so very competitive because every loan matters,” said Ed Robinson, head of the mortgage business at Fifth Third Bancorp . He added that the bank is contacting homeowners who could be eligible for a refinancing in coming years to help maintain that business, and it is also instructing mortgage-loan officers to focus more on purchases.

We demonstrated this plunge in bank mortgage financing last quarter when we showed the near record low mortgage application activity at America’s largest traditional mortgage lender, Wells Fargo.

https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/wells%20mortgage%20pipeline%20q4%202017.jpg?itok=HPwwGJBS

Non-traditional lenders face even greater peril: Quicken Loans Inc. got about 70% of its mortgage-origination volume last year from refinancings, according to Inside Mortgage Finance—a higher proportion than any other large lender.

Of course, the higher rates rise, the more mortgage applications drop, suggesting that contrary to expectations for a rebound in interest expense as Net Interest Margin rises, bank will be far worse off as a result of rising rates as refi activity grinds to a crawl.

Or, as the WSJ explains it, “increased mortgage rates can hamper refinancing activity because many homeowners have rates that are already lower than what lenders can now offer. In other cases, the higher rates cut into the savings a homeowner stands to reap by refinancing a mortgage.”

The Mortgage Bankers Association expects nothing short of a bloodbath: it forecasts overall mortgage-purchase volume to grow about 5% in 2018 but refinancing volume to drop 27%. Refinance applications fell 5% in the week ended March 16 from the prior one, according to the group.

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_7-28-19.jpg?itok=b0RlhifW

Here is another example of how higher rates are crushing – not helping – traditional banks: since around the beginning of 2017, Valley National Bancorp , based in Wayne, N.J., has transitioned its mortgage business to 40% refinancing from 90%, said Kevin Chittenden, who runs residential lending. The bank previously relied largely on attracting homeowners through its ads for low-cost refinancings, but has since engaged with outside sales reps who are focused on purchases.

“Refi goes with the rates,” Mr. Chittenden said. “So you definitely don’t want to be too leveraged on refinancings.”

It’s about to get worse. 

Guy Cecala, chief executive of Inside Mortgage Finance, said he expects some smaller nonbank lenders to sell themselves by the end of the year because of the drop in the refinancing market and mortgage originations overall. Unlike banks, nonbank lenders typically don’t rely on branches or ties to local agents, which are traditional tools for capturing mortgage purchases.

Another risk: the return of subprime borrowers. As the WSJ adds, the waning of the refinancing boom also attracts a different type of homeowner than at the beginning. As mortgage rates go up, the average credit score of refinancings tends to go down, according to industry research.

That is partly because savvy borrowers are the ones who tend to take advantage of low interest rates first. Also, some borrowers who are refinancing now are doing so to get rid of their mortgage insurance: Home prices in many parts of the country are going up, meaning some homeowners are less leveraged even if they have paid down only a small portion of their mortgage.

As for “new” mortgage platforms such as Quicken Loans which face an imminent calamity as their refi platform implodes, Chief Executive Jay Farner said the company is still enjoying demand for both purchases and refinancings, including from homeowners whose decision to refinance is focused less on rates and more on consolidating debt or switching to a shorter-term loan.

But, he added, “You’ve got to be a little bit more strategic about how you market, versus what we saw lenders do in the last few years, which is, ‘Hey, rates are low, you should do something now.’”

* * *

The biggest irony in all of the above, of course, is that there are still those who will claim that higher rates in the “new normal” are good for banks. For the far more unpleasant reality: see a chart of Wells Fargo stock.

Source: ZeroHedge

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“This Isn’t A Drill” Mortgage Rates Hit Highest Level Since May 2014


A housing bust may be just around the corner. Rates have climbed to a level last seen in May of 2014.

https://imageproxy.themaven.net/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fmaven-user-photos%2Fmishtalk%2Feconomics%2FzmfATcSa4EegwR7v_znq6Q%2FvclF4JZbsEi5-4w6F9RDfw?w=993&q=75&h=620&auto=format&fit=crop

The chart does not quite show what MND headline says but the difference is a just a few basis points. I suspect rates inched lower just after the article came out.

 

For the past few weeks, rates made several successive runs up to the highest levels in more than 9 months. It was really only the spring of 2017 that stood in the way of rates being the highest since early 2014. After Friday marked another “highest in 9 months” day, it would only have taken a moderate movement to break into the “3+ year” territory. The move ended up being even bigger.

From a week and a half ago, most borrowers are now looking at another eighth of a percentage point higher in rate. In total, rates are up the better part of half a point since December 15th. This marks the only time rates have risen this much without having been at long term lows in the past year. For example, late 2010, mid-2013, mid-2015, and late 2016 all saw sharper increases in rates overall, but each of those moves happened only 1-3 months after a long term rate low.

Not a Drill

So far this month, MBS have stunningly dropped over 200 bps, which easily translates into a .5% or more increase in rates. I’ve been shouting “lock early” for quite a while, and this is precisely why, This isn’t a drill, or a momentary rate upturn. It’s likely the end of a decade+ long bull bond market. LOCK EARLY. -Ted Rood, Senior Originator

Housing Bust Coming

Drill or not, if rising rates stick, they are bound to have a negative impact on home buying.

In the short term, however, rate increases may fuel the opposite reaction people expect.

Why?

Those on the fence may decide it’s now or never and rush out to purchase something, anything. If that mentality sets in, there could be one final homebuilding push before the dam breaks. That’s not my call. Rather, that could easily be the outcome.

Completed Homes for Sale

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/_fdE0Pr4Z0S3TWc8qCyW3Q

Speculation by home builders sitting on finished homes in 2007 is quite amazing.

What about now?

Supply of Homes in Months at Current Sales Rate

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/bMlHtJTWr0yQwhkos7lauA

Note that spikes in home inventory coincide with recessions.

A 5.9 month supply of homes did not seem to be a problem in March of 2006. In retrospect, it was the start of an enormous problem.

In absolute terms, builders are nowhere close to the problem situation of 2007. Indeed, it appears that builders learned a lesson.

Nonetheless, pain is on the horizon if rates keep rising.

Price Cutting Coming Up?

If builders cut prices to get rid of inventory, everyone who bought in the past few years is likely to quickly go underwater.

Bringing Forward Important Questions About The Fed’s Role In Our Economy Today

I hope this article brings forward important questions about the Federal Reserves role in the US as it attempts to begin a broader dialogue about the financial and economic impacts of allowing the Federal Reserve to direct America’s economy.  At the heart of this discussion is how the Federal Reserve always was, or perhaps morphed, into a state level predatory lender providing the means for a nation to eventually bankrupt itself.

Against the adamant wishes of the Constitution’s framers, in 1913 the Federal Reserve System was Congressionally created.  According to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.”  Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest.

A quick overview; monetary policy is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.  The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy.  Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates.  Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States.

I suggest what truly happened in 1913 was that Congress willingly abdicated a portion of its responsibilities, and through the Federal Reserve, began a process that would undermine the functioning American democracy.  “How”, you ask?  The Fed, believing the free-market to be “imperfect” (aka; wrong) believed it (the Fed) should control and set interest rates, determine full employment, determine asset prices; not the “free market”.  And here’s what happened:

  • From 1913 to 1971, an increase of  $400 billion in federal debt cost $35 billion in additional annual interest payments.
  • From 1971 to 1981, an increase of $600 billion in federal debt cost $108 billion in additional annual interest payments.
  • From 1981 to 1997, an increase of $4.4 trillion cost $224 billion in additional annual interest payments.
  • From 1997 to 2017, an increase of $15.2 trillion cost “just” $132 billion in additional annual interest payments.

Stop and read through those bullet points again…and then one more time.  In case that hasn’t sunk in, check the chart below…

index1

What was the economic impact of the Federal Reserve encouraging all that debt?  The yellow line in the chart below shows the annual net impact of economic growth (in growing part, spurred by the spending of that new debt)…gauged by GDP (blue columns) minus the annual rise in federal government debt (red columns).  When viewing the chart, the problem should be fairly apparent.  GDP, subtracting the annual federal debt fueled spending, shows the US economy is collapsing except for counting the massive debt spending as “economic growth”.

index2

Same as above, but a close-up from 1981 to present.  Not pretty.

index3

Consider since 1981, the Federal Reserve set FFR % (Federal Funds rate %) is down 94% and the associated impacts on the 10yr Treasury (down 82%) and the 30yr Mortgage rate (down 77%).  Four decades of cheapening the cost of servicing debt has incentivized and promoted ever greater use of debt.

index4

Again, according to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.”  However, the chart below shows the Federal Reserve policies’ impact on the 10yr Treasury, stocks (Wilshire 5000 representing all publicly traded US stocks), and housing to be anything but “safer” or “stable”.

index5

Previously, I have made it clear the asset appreciation the Fed is providing is helping a select few, at the expense of the many, HERE.

But a functioning democratic republic is premised on a simple agreement that We (the people) will freely choose our leaders who will (among other things) compromise on how taxation is to be levied, how much tax is to be collected, and how that taxation is to be spent.  The intervention of the Federal Reserve into that equation, controlling interest rates, outright purchasing assets, and plainly goosing asset prices has introduced a cancer into the nation which has now metastasized.

In time, Congress (& the electorate) would realize they no longer had to compromise between infinite wants and finite means.  The Federal Reserve’s nearly four decades of interest rate reductions and a decade of asset purchases motivated the election of candidates promising ever greater government absent the higher taxation to pay for it.  Surging asset prices created fast rising tax revenue.  Those espousing “fiscal conservatism” or living within our means (among R’s and/or D’s) were simply unelectable.

This Congressionally created mess has culminated in the accumulation of national debt beyond our means to ever repay.  As the chart below highlights, the Federal Reserve set interest rate (Fed. Funds Rate=blue line) peaked in 1981 and was continually reduced until it reached zero in 2009.  The impact of lower interest rates to promote ever greater national debt creation was stupendous, rising from under $1 trillion in 1981 to nearing $21 trillion presently.  However, thanks to the seemingly perpetually lower Federal Reserve provided rates, America’s interest rate continually declined inversely to America’s credit worthiness or ability to repay the debt.

index6

The impact of the declining rates meant America would not be burdened with significantly rising interest payments or the much feared bond “Armageddon” (chart below).  All the upside of spending now, with none of the downside of ever paying it back, or even simply paying more in interest.  Politicians were able to tell their constituencies they could have it all…and anyone suggesting otherwise was plainly not in contention.  Federal debt soared and soared but interest payable in dollars on that debt only gently nudged upward.

  • In 1971, the US paid $36 billion in interest on $400 billion in federal debt…a 9% APR.
  • In 1981, the US paid $142 billion on just under $1 trillion in debt…a 14% APR.
  • In 1997, the US paid $368 billion on $5.4 trillion in debt or 7% APR…and despite debt nearly doubling by 2007, annual interest payments in ’07 were $30 billion less than a decade earlier.
  • By 2017, the US will pay out about $500 billion on nearly $21 trillion in debt…just a 2% APR.

index7

The Federal Reserve began cutting its benchmark interest rates in 1981 from peak rates.  Few understood that the Fed would cut rates continually over the next three decades.  But by 2008, lower rates were not enough.  The Federal Reserve determined to conjure money into existence and purchase $4.5 trillion in mid and long duration assets.  Previous to this, the Fed has essentially held zero assets beyond short duration assets in it’s role to effect monetary policy.  The change to hold longer duration assets was a new and different self appointed mandate to maintain and increase asset prices.

index8

But why the declining interest rates and asset purchases in the first place?

The Federal Reserve interest rates have very simply primarily followed the population cycle and only secondarily the business cycle.  What the chart below highlights is annual 25-54yr/old population growth (blue columns) versus annual change in 25-54yr/old employees (black line), set against the Federal Funds Rate (yellow line).  The FFR has followed the core 25-54yr/old population growth…and the rising, then decelerating, now declining demand that that represented means lower or negative rates are likely just on the horizon (despite the Fed’s current messaging to the contrary).

index9

Below, a close-up of the above chart from 2000 to present.

index10

Running out of employees???  Each time the 25-54yr/old population segment has exceeded 80% employment, economic dislocation has been dead ahead.  We have just exceeded 78% but given the declining 25-54yr/old population versus rising employment…and the US is likely to again exceed 80% in 2018.

index11

Given the FFR follows population growth, consider that the even broader 20-65yr/old population will essentially see population growth grind to a halt over the next two decades.  This is no prediction or estimate, this population has already been born and the only variable is the level of immigration…which is falling fast due to declining illegal immigration meaning the lower Census estimate is more likely than the middle estimate.

index12

So where will America’s population growth take place?  The 65+yr/old population is set to surge.

index13

But population growth will be shifting to the most elderly of the elderly…the 75+yr/old population.  I outlined the problems with this previously HERE.

index14

Back to the Federal Reserve, consider the impact on debt creation prior and post the creation of the Federal Reserve:

  • 1790-1913: Debt to GDP Averaged 14%
  • 1913-2017: Debt to GDP Averaged 53%
    • 1913-1981: 46% Average
    • 1981-2000: 52% Average
    • 2000-2017: 79% Average

As the chart below highlights, since the creation of the Federal Reserve the growth of debt (relative to growth of economic activity) has gone to levels never dreamed of by the founding fathers.  In particular, the systemic surges in debt since 1981 are unlike anything ever seen prior in American history.  Although the peak of debt to GDP seen in WWII may have been higher (changes in GDP calculations mean current GDP levels are likely significantly overstating economic activity), the duration and reliance upon debt was entirely tied to the war.  Upon the end of the war, the economy did not rely on debt for further growth and total debt fell.

index15

Any suggestion that the current situation is like any America has seen previously is simply ludicrous.  Consider that during WWII, debt was used to fight a war and initiate a global rebuild via the Marshall Plan…but by 1948, total federal debt had already been paid down by $19 billion or a seven percent reduction…and total debt would not exceed the 1946 high water mark again until 1957.  During that ’46 to ’57 stretch, the economy would boom with zero federal debt growth.

  • 1941…Fed debt = $58 b (Debt to GDP = 44%)
  • 1946…Fed debt = $271 b (Debt to GDP = 119%)
    • 1948…Fed debt = $252 b <$19b> (Debt to GDP = 92%)
    • 1957…Fed debt = $272 b (Debt to GDP = 57%)

If the current crisis ended in 2011 (recession ended by 2010, by July of  2011 stock markets had recovered their losses), then the use of debt as a temporary stimulus should have ended?!?  Instead, debt and debt to GDP are still rising.

  • 2007…Federal debt = $8.9 T (Debt to GDP = 62%)
  • 2011…Federal debt = $13.5 T (Debt to GDP = 95%)
  • 2017…Federal Debt = $20.5 T (Debt to GDP = 105%)

July of 2011 was the great debt ceiling debate when America determined once and for all, that the federal debt was not actually debt.  America had no intention to ever repay it.  It was simply monetization and since the Federal Reserve was maintaining ZIRP, and all oil importers were forced to buy their oil using US dollars thanks to the Petrodollar agreement…what could go wrong?

But who would continue to buy US debt if the US was addicted to monetization in order to pay its bills?  Apparently, not foreigners.  If we look at foreign Treasury buying, some very notable changes are apparent beginning in July of 2011:

  1. The BRICS (Brazil, Russia, India, China, S. Africa…represented in red in the chart below) ceased net accumulating US debt as of July 2011.
  2. Simultaneous to the BRICS cessation, the BLICS (Belgium, Luxembourg, Ireland, Cayman Island, Switzerland…represented in black in the chart below) stepped in to maintain the bid.
  3. Since QE ended in late 2014, foreigners have followed the Federal Reserve’s example and nearly forgone buying US Treasury debt.

index17

China was first to opt out and began net selling US Treasuries as of August, 2011 (China in red, chart below).  China has continued to run record trade driven dollar surplus but has net recycled none of that into US debt since July, 2011.  China had averaged 50% of its trade surplus into Treasury debt from 2000 to July of 2011, but from August 2011 onward China stopped cold.

As China (and more generally the BRICS) ceased buying US Treasury debt, a strange collection of financier nations (the BLICS) suddenly became very interested in US Treasury debt.  From the debt ceiling debate to the end of QE, these nations were suddenly very excited to add $700 billion in near record low yielding US debt while China net sold.

index18

The chart below shows total debt issued during periods, from 1950 to present, and who accumulated the increase in outstanding Treasurys.

index19

The Federal Reserve plus foreigners represented nearly 2/3rds of all demand from ’08 through ’14.  However, since the end of QE, and that 2/3rds of demand gone…rates continue near generational lows???  Who is buying Treasury debt?  According to the US Treasury, since QE ended, it is record domestic demand that is maintaining the Treasury bid.  The same domestic public buying stocks at record highs and buying housing at record highs.

index20

Looking at who owns America’s debt 2007 through 2016, the chart below highlights the four groups that hold nearly 90% of the debt: 

  1. The combined Federal Reserve/Government Accounting Series
  2. Foreigners
  3. Domestic Mutual Funds
  4. And the massive rise in Treasury holdings by domestic “Other Investors” who are not domestic insurance companies, not local or state governments, not depository institutions, not pensions, not mutual funds, nor US Saving bonds.

index21

Treasury buying by foreigners and the Federal Reserve has collapsed since QE ended (chart below).  However, the odd surge of domestic “other investors”, Intra-Governmental GAS, and domestic mutual funds have nearly been the sole buyer preventing the US from suffering a very painful surge in interest payments on the record quantity of US Treasury debt.

index22

No, this is nothing like WWII or any previous “crisis”.  While America has appointed itself “global policeman” and militarily outspends the rest of the world combined, America is not at war.  Simply put, what we are looking at appears little different than the Madoff style Ponzi…but this time it is a state sponsored financial fraud magnitudes larger.

The Federal Reserve and its systematic declining interest rates to perpetuate unrealistically high rates of growth in the face of rapidly decelerating population growth have fouled the American political system, its democracy, and promoted the system that has now bankrupted the nation.  And it appears that the Federal Reserve is now directing a state level fraud and farce.  If it isn’t time to reconsider the Fed’s role and continued existence now, then when?

By Chris Hamilton | Econimica

Highly Unusual US Treasury Yield Pattern Not Seen Since Summer of 2000

Curve watchers anonymous has taken an in-depth review of US treasury yield charts on a monthly and daily basis. There’s something going on that we have not see on a sustained basis since the summer of 2000. Some charts will show what I mean.

Monthly Treasury Yields 3-Month to 30-Years 1998-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07b1.png?w=768&h=448

It’s very unusual to see the yield on the long bond falling for months on end while the yield on 3-month bills and 1-year note rises. It’s difficult to spot the other time that happened because of numerous inversions. A look at the yield curve for Treasuries 3-month to 5-years will make the unusual activity easier to spot.

Monthly Treasury Yields 3-Month to 5-Years 1990-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07a3.png?w=768&h=454

Daily Treasury Yields 3-Month to 5-Years 2016-2017:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07c1.png?w=768&h=448

Daily Treasury Yields 3-Month to 5-Years 2000:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07d.png?w=768&h=453

One cannot blame this activity on hurricanes or a possible government shutdown. The timeline dates to December of 2016 or March of 2017 depending on how one draws the lines.

This action is not at all indicative of an economy that is strengthening.

Rather, this action is indicative of a market that acts as if the Fed is hiking smack in the face of a pending recession.

Hurricanes could be icing on the cake and will provide a convenient excuse for the Fed and Trump if a recession hits.

Related Articles

  1. Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run “Economic Benefit”
  2. Hurricane Harvey Ripple Effects: Assessing the Impact on Housing and GDP
  3. “10-Year Treasury Yields Headed to Zero Percent” Saxo Bank CIO

By Mike “Mish” Shedlock

Are Bonds Headed Back To Extraordinarily Low Rate Regime?

The U.S. 10-Year Treasury Yield has dropped back below the line containing the past decade’s “extraordinarily low-rate” regime.

https://martinhladyniuk.files.wordpress.com/2016/06/refinance-cartoon.png?w=625

Among the many significant moves in financial markets last fall in the aftermath of the U.S. presidential election was a spike higher in U.S. bond yields. This spike included a jump in the 10-Year Treasury Yield (TNX) above its post-2007 Down trendline. Now, this was not your ordinary trendline break. Here is the background, as we noted in a post in January when the TNX subsequently tested the breakout point:

“As many observers may know, bond yields topped in 1981 and have been in a secular decline since. And, in fact, they had been in a very well-defined falling channel for 26 years (in blue on the chart below). In 2007, at the onset of the financial crisis, yields entered a new regime.

Spawned by the Fed’s “extraordinarily low-rate” campaign, the secular decline in yields began a steeper descent.  This new channel (shown in red) would lead the TNX to its all-time lows in the 1.30%’s in 2012 and 2016.

The top of this new channel is that post-2007 Down trendline. Thus, recent price action has 10-Year Yields threatening to break out of this post-2007 technical regime. That’s why we consider the level to be so important.”

We bring up this topic again today because, unlike January’s successful hold of the post-2007 “low-rate regime” line, the TNX has dropped back below it in recent days. Here is the long-term chart alluded to above.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/17/20170420_bonds_1.jpg

And here is a close-up version.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/17/20170420_bonds_2.jpg

As can be seen on the 2nd chart, the TNX has just broken below several key Fibonacci Retracement levels near the 2.30% level – not to mention the post-2007 Down trendline which currently lies in the same vicinity. Does this meant the extraordinarily low-rate environment is back?

Well, first of all, the Federal Reserve only sets the overnight “Fed Funds” rate – not longer-term bond yields (at least not directly). So this is not the Fed’s direct doing (and besides, they’re in the middle of a rate hiking cycle). Therefore, the official “extraordinarily low-rate” environment that the Fed maintained for the better part of a decade is not coming back – at least not imminently. But how about these longer rates?

Outside of some unmistakable influence resulting from Fed policy, longer-term Treasury Yields are decided by free market forces. Thus, this return to the realm of the TNX’s ultra low-rate regime is market-driven, whatever the reason. Is there a softer underlying economic current than what is generally accepted at the present time? Is the Trump administration pivoting to a more dovish posture than seen in campaign rhetoric? Are the geopolitical risks playing a part in suppressing yields back below the ultra low-rate “line of demarcation”?

Some or all of those explanations may be contributing to the return of the TNX to its ultra low-rate regime. We don’t know and, frankly, we don’t really care. All we care about, as it pertains to bond yields, is being on the right side of their path. And currently, the easier path for yields is to the downside as a result of the break of major support near 2.30%.

Source: ZeroHedge

Fed Announced They’re Ready To Start Shrinking Their 4.5T Balance Sheet ― Prepare For Higher Mortgage Rates

Federal Reserve Shocker! What It Means For Housing

The Federal Reserve has announced it will be shrinking its balance sheet. During the last housing meltdown in 2008, it bought the underwater assets of big banks.  It has more than two trillion dollars in mortgage-backed securities that are now worth something because of the latest housing boom.  Gregory Mannarino of TradersChoice.net says the Fed is signaling a market top in housing.  It pumped up the mortgage-backed securities it bought by inflating another housing bubble.  Now, the Fed is going to dump the securities on the market.  Mannarino predicts housing prices will fall and interest rates will rise.

Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter

It appears, the worse the economy was doing, the higher the odds of a rate hike.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/06/20170315_GDPNOW.jpg

Putting the Federal Reserve’s third rate hike in 11 years into context, if the Atlanta Fed’s forecast is accurate, 0.9% GDP would mark the weakest quarter since 1980 in which rates were raised (according to Bloomberg data).

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/15/20170315_prefed10.jpg

We look forward to Ms. Yellen explaining her reasoning – Inflation no longer “transitory”? Asset prices in a bubble? Because we want to crush Trump’s economic policies? Because the banks told us to?

For now it appears what matters to The Fed is not ‘hard’ real economic data but ‘soft’ survey and confidence data…

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/15/20170315_prefed7.jpg

Source: ZeroHedge