Bonds begin their recovery!
After a good CPI number and a solid 10-year treasury auction, we saw a nice 75bp improvement in the UMBS 30YR 5.5% coupon, which followed up a 19bp gain on Tuesday. Today we have the PPI number and jobless claims, so we might see some more good news and another good day for bonds.
Despite all the good inflation data, you can expect the Fed to raise rates again at the end of the month, just because they can, and because they REFUSE to use any real-time data at their disposal and formulate a real strategy. As usual, the Fed is way behind the curve and refuses to admit they are wrong. Since you can’t fight the Fed, expect a slow, but steady decline in mortgage rates and when the economy stalls in the fall as those with student loans struggle to pay back what they owe, billions will not be spent on all they things they have been spending their, and our, money on the last two plus years! While I am sure there are a few people who have made their “payments” to their savings accounts, most just spent the money and are going to be surprised when the loans come due! Yes, I now the president said they weren’t going to have to pay those loans back, but he lied! He has another plan to try and lessen the blow, but it not only won’t work, but it will also get struck down in the courts. People, you borrowed the money, now just pay it back!
The next big challenge we are going to face in the mortgage industry is, what will the rules be for calculating student loan payments now that they are supposed to be being paid back, but there is the attempt to circumvent repayment with the new plan that they are calling “ramping up to repayment!” Just another challenge and quite possibly a very painful surprise to those who think they can go out and buy a home with a mortgage while they are “ramping up” their repayments! This is going to be very challenging if we don’t get some real leadership real soon; and I don’t think that is likely to happen. On the other hand, they could just pay back what they owe!
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