Sept 14. MBS new highs, but long end of treasury curve weaker
–FOMC announced open ended buying of $40b per month of MBS. With reinvestment of maturing issues and coupons, the total should be around $60b/month, against production of $80b. From Mortgage News Daily: “MBS Hit New All-Time Highs!…MBS can’t control their enthusiasm after the Fed announced MBS-Specific QE3 today, adding enough dedicated purchase money to the buy side each month to completely obviate any other buyers.” Surge of prepayments will shorten duration, leading to a steeper curve. Perhaps Japan will buy all US long treasuries as they struggle to hold down the yen vs the dollar…
–Gold and silver and oil and stocks all soared. Oct Crude right around $100 this morning, highest since May. High of the year was around $110 in March. My guess is that the domestic investor will shun the longer end of the treasury market because yields don’t cover (now increased) inflationary risks, which doesn’t mean that yields will rise, but it’s unlikely that they fall from here. The pledge to extend the period of low rates through mid-2015 locks the prices of the short end.
–For areas of underwater properties, this won’t help much. I suppose that on balance investors will be encouraged to buy to create rental units, given strong rents. In better areas, the market was already fine. My brother Aldo emphatically told me that rehab and new construction is blazing around Wicker Park and other hot areas of Chicago. The tract in the desert on the outskirts of Phoenix should have never been built anyway… I suppose it could also help employment to a degree as some construction guys are lured out of disablement and cash-only jobs. (With a month left in this fiscal year the govt spent $594.6b on social sec and disability, record 56.3 million people receiving benefits).
–News today includes CPI expected +0.6 with Core +0.2. Retail Sales +0.8. Ind Prod -0.1, Capacity 79.2. Oh, and a bond meltdown.
