Morning Report: Bond yields spike

Vital Statistics:


  Last Change
S&P futures 3807 40.4
Oil (WTI) 65.60 1.86
10 year government bond yield   1.60%
30 year fixed rate mortgage   3.18%

Stocks are higher this morning after a strong jobs report. Bonds and MBS are down.


The employment situation report showed the economy added 379,000 jobs in February, which was above expectations. The unemployment rate fell from 6.3% to 6.2%. The labor force participation rate declined to 61.4%, and is down 1.9 percentage points from a year ago. The employment-population ratio stood at 57.6%, which is down 3.5 percentage points from a year ago. Overall, the number of employed persons fell by 8.5 million over the past year. Ignoring normal demographics and population growth, it will take two years worth of job numbers like January just to get back to where we were a year ago.

Average hourly earnings rose 0.2% MOM and 5.3% YOY. Average weekly hours fell however from 35 to 34.6. Overall, the payroll number was nominally good, but some of the internals aren’t fantastic.


The bond market abruptly sold off yesterday during Jerome Powell’s webinar at the Wall Street Journal. The issue revolves around something called the supplemental liquidity ratio for banks. This is real inside-baseball stuff that I won’t get into, but suffice it to say that trading in all sorts of derivative interest rate markets like the repo market are trading at negative rates. The punch line is that the sudden uptick in bond yields isn’t so much due to economic fundamentals as it is to other issues which are being driven by Fed banking regulations. These regulations are being further complicated by the political mood in DC which will interpret any changes as a sop to the banks. Mortgage rates aren’t necessarily ignoring the movement in the 10 year, but they are lagging the move.


United Wholesale has said “its us or them.” Brokers can either choose to do business with United Wholesale or they can use Rocket and Fairway. They can’t do both. Matt Ishbia, CEO of United Wholesale said: “If you work with them, can’t work with UWM anymore, effective immediately. I can’t stop you, but I’m not going to help you, help the people that are hurting the broker channel, and that’s what’s going on right now. We don’t need to fund Fairway Independent or Rocket Mortgage to try to put brokers out of business. We don’t need to do that. If you want to do that as your own deal, no hard feelings, but you can’t work with UWM anymore.” Apparently this comes after reports that Fairway and Rocket were soliciting brokers and working directly with real estate agents.



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