| Last | Change | Percent | |
| S&P Futures | 2070.3 | -3.9 | -0.19% |
| Eurostoxx Index | 3550.0 | -8.0 | -0.22% |
| Oil (WTI) | 60.8 | -0.1 | -0.21% |
| LIBOR | 0.276 | -0.004 | -1.38% |
| US Dollar Index (DXY) | 94.44 | 0.348 | 0.37% |
| 10 Year Govt Bond Yield | 2.23% | -0.01% | |
| Current Coupon Ginnie Mae TBA | 101.8 | -0.2 | |
| Current Coupon Fannie Mae TBA | 100.7 | 0.1 | |
| BankRate 30 Year Fixed Rate Mortgage | 3.91 |
Stocks are down small as we get a few mixed signals on the job market. Bonds and MBS are holding in there despite another big sell-off in the German Bund, which now yields almost 65 basis points - this is an increase of 57 basis points in about two weeks. Welcome to the new QE normal, where sovereign debt trades with the volatility of tech stocks.
Note that the volatility in the Bund has hurt Bill Gross, who considers it "the short of a lifetime." Unfortunately, it looks like Bill sold options against the Bund, betting it would trade in a narrow range, and is now taking some gas on his position given the furious sell-off Euro sovereign debt. Welcome to the wonderful world of negative convexity, which is the bane of mortgage bankers globally.
The volatility in bonds has hurt the mortgage REITs, the latest of which is Annaly Capital, which missed yesterday. American Capital Agency struggled with the volatility as well. Interestingly, American Capital Agency was responsible for some of the outperformance in FHA / VA pricing at the end of the quarter. Ordinarily, they don't buy Ginnie Mae TBAs as Fannies offer higher returns, but they viewed the Ginnie Mae sell off due to the change in MI was overdone, and took a position the other way. Mortgage REITs are generally most active in the secondary market for MBS, however they do dabble in TBAs and can affect loan pricing at the margin.
We have some mixed employment data this morning, with Challenger and Gray announced job cuts increasing 53% to 61,582 in April, which is the highest number in 3 years. About a third of these cuts are in the oil patch, as Schlumberger, Baker Hughes, and Halliburton all announced layoffs. The other big category is retail, where you are seeing layoffs as well. Ordinarily, you would expect lower energy prices to translate into higher spending at the mall, but it isn't working out that way this time around. Blame broke Millennials who can't find jobs, Gen-Xers who drew the candy cane card as they were hitting their peak earning years, and Baby Boomers who had to retire a little earlier than they had planned.
On the plus side, initial jobless claims hit 265,000 last week, which is still flirting with 15 year lows. One thing to keep in mind between the initial jobless claims report and Challenger: Challenger looks at announced job cuts. Often, those cuts end up not happening because the business turns around first.
The Bloomberg Consumer Comfort Index fell to 43.7 last week as consumers still fret about the state of the economy. An index reading of 50 is considered "normalcy."
Janet Yellen ventured into Alan Greenspan territory yesterday when she remarked stock prices are still "quite high." It didn't have the effect on markets that Alan Greenspan's "irrational exuberance" comments did, as stocks largely ignored the warning. Memo to central bankers: You don't have a bubble in stocks. You have a bubble in sovereign debt.
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