CHM Blog

Europe trading prior to 8 am ET the 10 was down 3 bps; MBSs began unchanged this morning. No change in what markets are doing, waiting for J Powell’s speech on Friday morning.

S&P joining Moody’s, downgrading more banks. The agency lowered KeyCorp, Comerica Inc., Valley National Bancorp, UMB Financial Corp. and Associated Banc-Corp, by on notch while lowering River City Bank and S&T Bank to negative and said its view of Zions Bancorp. Bank outlooks continue to worry investors as interest rate have increased much more than was thought just two months ago. The economy remaining resilient even as interest rates have exceeded most forecasts. Many depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs,” S&P wrote in a note summarizing the moves. “The decline in deposits has squeezed liquidity for many banks while the value of their securities — which make up a large part of their liquidity — has fallen.” Employment not slowing, debt levels increasing, and the Fed twisted about what can ne done. Keep trying to drive inflation down to 2.0% but running close to the edge of recession views. Looks like stagflation may be building in some outlooks.

Americans now have a collective $1 trillion in credit-card debt and delinquency rates are rising. The balance carried monthly climbed to $5,947 in the second quarter, up from $5,270 a year ago, TransUnion said in a recent report. Credit card rates average 22% and higher. Consolidating helps but not much, August, three-year loans averaged 15.04%, up from 10.65% a year ago. At some point it is going to sink in consumers are going to retreat and equity markets will take a hit, how much and when will it happen?

The KBW Bank Index of major US banks has since slumped almost 7% — heading for its worst monthly performance since the collapse of three regional banks in March sparked a broad selloff. Bank assets are declining; banks have two choices when investing, either mark them as available for sale or hold to maturity; federally insured banks were sitting on more than $550B in unrealized losses on their available-for-sale and held-to-maturity securities as of mid-year, S&P said. “While many measures of asset quality still look benign, higher rates are pressuring borrowers,” S&P wrote. “Banks with material exposures to commercial real estate, especially in office loans, could see some of the greatest strains.” It wasn’t expected that interest rates shot this much higher recently, catching many off guard, the economic outlook while still being resisted by equity markets will pick up momentum going forward. Consumers coming to an end with spending as interest rates increase. What Powell says Friday, while always critical, even more so this time around.

At 9:30 am the DJIA opened +26, NASDAQ +84, S&P +17. 10 year note 4.34% +1 bps. FNMA 6.0 30 year coupon at 9:30 am -5 bps from yesterday’s close and +6 bps from 9:30 am yesterday.

At 10 am July existing home sales expected at 4.15 mil from 4.16 mil in June, sales reported at 4.07 mil, down 2.2% and -16.6% year/year.

At 2:30 pm Austin Goolsbee, Chicago Fed, is scheduled to speak.

PRICES @ 10:00 AM

10 year note: 4.35% +1 bp

5 year note: 4.48% +2 bp

2 year note: 5.03% +1 bp

30 year bond: 4.44% unch

30 year FNMA 6.0: @9:30 am 99.03 -5 bp (+6 bp from 9:30 am yesterday)

30 year FNMA 5.5: @9:30 am 97.30 -5 bp (-3 bp from 9:30 am yesterday)

30 year GNMA 5.5: @9:30 am 97.66 -3 bp (+11 bp from 9:30 am yesterday)

Dollar/Yuan: $7.2963 +$0.0535

Dollar/Yen: 146.07 -0.16 yen

Dollar/Euro: $1.0854 -$0.0042

Dollar Index: 103.58 +0.28

Gold: $1922.00 -$1.00

Bitcoin: 26,025 -88

Crude Oil: $80.73 unchanged

DJIA: 34,444 -19

NASDAQ: 13,538 +41

S&P 500: 4404 +4

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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