10-Year Treasury Yield
10-year Treasury yield hits the highest since 2019 after Powell’s remarks. The 10-year U.S. Treasury yield hit a multi-year high Tuesday as investors digested comments from Federal Reserve Chair Jerome Powell on rate hikes. The yield on the benchmark 10-year Treasury note rose 6.2 basis points to 2.379% at 4:05 p.m. ET. The yield on the 30-year Treasury bond gained 6.7 basis points to 2.603%. Yields move inversely to prices and 1 basis point is equal to 0.01%. The benchmark 10-year yield earlier in the session hit a fresh high of 2.392%, the highest level since May 2019.
Geopolitical Risks
U.S. President Joe Biden flies to Europe today for an emergency NATO summit on Ukraine, where invading Russian troops are stalled, cities are under bombardment and the besieged port of Mariupol is in flames. Four weeks into a war that has driven a quarter of Ukraine's 44 million people from their homes, Russia has failed to capture a single major Ukrainian city, while Western sanctions have ostracized it from the world economy. Russia's combat power in Ukraine has declined below 90 percent of its pre-invasion levels for the first time since its attack began, a senior U.S. defense official said, suggesting heavy losses of weaponry and growing casualties.
The Chicago Fed National Activity Index
The Chicago Fed National Activity Index edged down to 0.51 in February of 2022 from 0.59 in January, pointing to a slight decrease in economic growth. Production-related indicators contributed 0.22, down slightly from 0.25 in January; and the contribution of the personal consumption and housing category fell to –0.04 from 0.21. On the other hand, the contribution of the sales, orders, and inventories category was unchanged at 0.04; and employment-related indicators contributed 0.28, up from 0.10. The index’s three-month moving average, CFNAI-MA3, ticked down to 0.35 in February from 0.37 in January
MBA Purchase Applications
Refinance applications, significantly impacted by high mortgage rates, declined 14.3%. A sharp increase in mortgage interest rates is taking its toll on loan demand, especially refinances. Total mortgage application volume fell 8.1% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.50% from 4.27%, with points rising to 0.59 from 0.54 (including the origination fee) for loans with a 20% down payment. As a result, applications to refinance a home loan, which are highly sensitive to weekly rate moves, fell 14% from the previous week and were 54% lower than the same week one year ago. Mortgage applications to purchase a home fell 2% for the week and were 12% lower than the same week one year ago.The refinance share of mortgage activity decreased to 44.8% of total applications from 48.4% the previous week.
New Home Sales
Sales of new U.S. single-family homes unexpectedly fell in February 2022 amid rising mortgage rates and higher house prices, which are reducing affordability for some first-time buyers. New home sales decreased 2% to a seasonally adjusted annual rate of 772,000 units last month, declining for a second straight month, the Commerce Department said on Wednesday. January's sales pace was revised down to 788,000 units from the previously reported 801,000 units. Economists polled by Reuters had forecast new home sales, which account for more than 10% of U.S. home sales, would rebound to a rate of 810,000 units.
Jobless Claims
Jobless claims fell to the lowest level since 1969. The government also reported that the number of Americans filing for jobless benefits fell more than expected last week amid elevated business demand for workers and easing COVID-19 cases nationwide. Figures released Thursday by the Labor Department show that applications for the week ended March 19 fell to 187,000 from an upwardly revised 215,000 a week earlier. It easily beat economists' forecast of 212,000 claims and marks the lowest level for initial claims since September 1969 when it was 182,000.
Current Account
U.S. current account deficit biggest on record in 2021. The U.S. current account deficit narrowed in the fourth quarter, but the shortfall in 2021 was the largest on record amid a surge in imports as businesses rushed to replenish depleted inventories to meet strong demand. The Commerce Department said on Thursday that the current account deficit, which measures the flow of goods, services and investments into and out of the country, shrank 0.9% to $217.9 billion last quarter. Economists polled by Reuters had forecast a $218.0 billion deficit last quarter. The current account gap represented 3.6% of gross domestic product, down from 3.8% in the July-September quarter. The deficit peaked at 6.3% of GDP in the fourth quarter of 2005. The United States is now a net exporter of crude oil and fuel.
For all of 2021, the current account deficit shot up 33.4% to an all-time high of $821.6 billion. The deficit last year represented 3.6% of GDP, the largest share since 2008 and up from 2.9% in 2020. The yawning current account gap in 2021 is not a problem for the United States given the dollar's status as the world's reserve currency. The narrowing in the current account deficit last quarter reflected a smaller shortfall on secondary income and increased surpluses on services and on primary income.
Durable Goods Orders
US durable goods orders slip in February, marking first decline in 5 months. Orders at U.S. factories for long-lasting goods fell more than expected in February 2022, snapping a months-long streak of increases and business investment as manufacturers confronted a worsening supply-chain crisis. Bookings for all durable goods – products that are intended to last at least three years – fell 2.2%, the first decline in five months, the government reported on Thursday. Economists surveyed by Refinitiv forecast a 0.5% decline.
PMI Composite Flash - Business Activity
U.S. PMI Composite Flash expands to 8-month high levels. March 2022 IHS Markit U.S. PMI Composite Index (Flash) for March 2022: 58.5 vs. 56 prior (revised: 55.9). Manufacturing Index: 58.5 vs. 56.3 consensus vs. 57.5 prior (revised: 57.3). Manufacturers and service providers recorded stronger upturns in activity amidst rising demand and easing of Cobid-19 restrictions. New orders led the growth as a bounce in client demand strengthened for the second month peaking to 9-month high; new export orders rose at faster pace at the end of Q1. Service Index: 58.9 vs. 56.0 consensus vs. 56.7 prior (revised: 56.5). The rate of overall job creation was the sharpest since April 2021, as manufacturers and service providers alike recorded steeper upturns in employment.
Oil - Commodity
Oil headed for the first weekly gain in three weeks as the EU continued to debate how it can decrease its reliance on Russian exports and Saudi Arabian energy assets came under attack. Futures in New York reversed losses earlier in Friday’s session to trade near $113. Yemen’s Houthi rebels claimed responsibility for a series of attacks on Saudi Aramco facilities, including an oil storage facility in Jeddah. Saudi Arabia warned this week that crude supplies are at risk, and called on the U.S. to do more to counter attacks from the Iran-backed rebels. West Texas Intermediate for May delivery rose 69 cents to $113.03 at 2:09 p.m. in New York. Brent for May settlement rose 49 cents to $119.52 a barrel.
Fixed Mortage Rates
Mortgage rates are surging faster than expected, prompting economists to lower their home sales forecasts. The average rate on the popular 30-year fixed mortgage hit 4.72% on Tuesday, moving 26 basis points higher since just Friday, according to Mortgage News Daily. As a result of the recent spike in rates, economists are now lowering their home sales forecasts for this year. Most estimates at the end of last year had the average 30-year mortgage rate hitting 4.5% by the end of 2022, but the war in Ukraine, rising oil prices and inflation have all lit a fire under interest rates.
The average rate on the 30-year fixed mortgage shot significantly higher Friday, rising 24 basis points to 4.95%, according to Mortgage News Daily. It is now 164 basis points higher than it was one year ago. That’s the second time this week, and it puts this week on par with the worst week from the 2013 taper tantrum — a record we didn’t see being legitimately challenged a few days ago. On Tuesday, the rate had hit 4.72%, a 26-basis-point jump from March 18. The quicker-than-expected rise in rates has weighed on demand for mortgages and refinancing loans. The rate surged as the yield on the U.S. 10-year Treasury also took off. Mortgage rates follow that yield loosely, but not entirely. Mortgage rates are also influenced by demand for mortgage-backed bonds. The Federal Reserve is scaling back its holdings of these assets and is also hiking interest rates..
Consumer Sentiment UM
US consumer sentiment fell again amid rising rates, war and inflation. Consumer sentiment slumped again in March 2022, hitting its lowest level since August 2011, the University of Michigan reported Friday. High inflation, volatile oil prices, geopolitical unrest and now rising interest rates, have left consumers with a bitter taste about the state of the US economy. The March 2022 index was revised down to 59.4 from a preliminary reading of 59.7 released two weeks ago, when rising prices and the Russia-Ukraine conflict were already spurring unease among consumers. In March 2021, the consumer sentiment index was 84.9. Consumers are battling the highest inflation since 1982 and with it, a barrage of rising costs: Mortgage rates increased again this week, bringing the traditional 30-year fixed rate to 4.42%, adding an average of $300 a month for homebuyers. Gas prices are still at record highs in parts of the country, and the latest Consumer Price Index showed most essential goods are up by 7.9% year on year.
Pending Home Sales
In a grim sign for the housing market’s busiest season, pending home sales, which measure signed contracts on existing homes, fell 4.1% in February 2022 compared with January 2022, according to the National Association of Realtors. Sales were down 5.4% compared with February 2021. Analysts were expecting a slight gain. This is the fourth straight month of declines in pending sales, which are an indicator of future closings, one to two months out. Since this count is based on signed contracts in February, when mortgage rates really started to take off, it is a strong indicator of how the market is reacting to the new rate environment, especially as it is entering the crucial spring season. Rates began rising in January and continued sharply higher in February. The average rate on the 30-year fixed mortgage is now more than a full percentage point higher than it was one year ago.
10-Year Treasury Yield end of Week
The 10-year U.S. Treasury yield hit a fresh two-year high Friday as investors anticipate a more aggressive Fed. The 10-year rate at its highs of Friday’s session hit 2.503%, its highest level since May 2019. The yield started the week near 2.15%. The yield on the benchmark 10-year Treasury note moved 10.4 basis points higher to 2.445% by 9:45 a.m. ET. The yield on the 30-year Treasury bond jumped 7.1 basis points to 2.583%. Yields move inversely to prices and 1 basis point is equal to 0.01%. The 2-year yield hit a high of 2.259%, the highest level since May 2019 as well. |
