It is just amazing how one strong NFP number has changed the tone of the financial markets. It seems like only yesterday (actually Friday morning @ 8:29) that the financial markets were preparing for the end of the Fed’s involvement, higher bond yields and a Dow that was on a trajectory to 15k. The world was all good and the financial markets were going to jump on board the bandwagon singing Kumbaya as we were on our way to great financial expansion. Well this was not meant to be just yet and what was an unimaginable thought back then of a sub 2.00% 10yr became a reality yesterday as we touched 1.96%. We are opening down from yesterday’s close as we sit @ 2.03% which is not all that bad.
It definitely has been an interesting last few days as we are clearly in the midst of a possible market correction in bonds and equities. The most recent highs of the Dow was 13,252. Yesterday we got to a low of 12,652 so that would translate to a 4.5% correction. Obviously this is right in-line with the drop in bond yields. What we are seeing this morning is some buying in equities which is pushing money out of bonds. This validates just how bad and unexpected the NFP number actually was. This is in contrast to what has been a ho-hum number the last few months which was quickly forgotten by about 8:45.
Where we go from here will be interesting because you get the feel that the NFP number has now ran its course with today’s shift back into equities. My guess is that we need some more economic numbers with some teeth to push us towards a direction. We do have PPI and CPI on Thursday and Friday respectively. If those numbers are below expectations and show that inflation is in check then we may get another push down in bond yields. I would not expect that to be the case but I am also the same guy who thought a sub 2.00% 10yr was unlikely barring something unraveling in Europe so what the hell do I know.
Last but not least it is Wednesday so we got the results of the MBA Weekly Application Survey. Remember that rates were higher for the reporting period for the week ending 4/6. Here are the highlights:
- Applications decreased 2.4%
- Refinance Index decreased 3.1%
- Purchase index decreased .5%
- The refinance share decreased for the 8th consecutive week to 70.5% which is the lowest since 7/29/11
- The average 30yr conforming rate was 4.10% w/.43pts
- The average 30yr FHA rate was 3.87% w/.55pts
- The average 15yr conventional was 3.37% w/.37pts
- The average 5/1 ARM was 2.89% w/.38pts