Coming into the streamed testimony of Fed Chair Jay Powell and Treasury Secretary Steven Mnuchin to the Senate Banking Committee yesterday, the most asked question was how forcefully would Powell be in following up his comments last week that more fiscal stimulus  may be needed. The answer to that question was essentially a repeat from last week without much embellishment. In questioning from Senator Brian Shatz (D-HI) about additional fiscal stimulus Powell said, “I make my comments on fiscal policy on a general level and I’m reluctant to talk about timing and specific provisions.” That comment comes in the midst of a partisan debate over additional spending that may, or may not, get through Congress. The Democratically-controlled House passed a $3 trillion measure last Friday that included $1 trillion for states and cities, additional $1,200 checks to citizens and an extension of extra unemployment benefits. The Republican-controlled Senate, however, won’t take up the House bill and is content to see how partial reopenings progress before allocating more money, a position that Mnuchin seconded. Powell, meanwhile, tactfully advocated for more fiscal stimulus, but he did it gently enough to provide cover for the Senate to continue and sit on more stimulus bills for now.

newspaper icon  Economic News


While the duo of Powell and Mnuchin gave both Democrats and Republicans some fodder for their positions, it seems states and cities may linger without additional stimulus funding until deeper into the summer. With states having to soon adopt budgets for the upcoming fiscal year, that for many begin in July, budget cuts will most likely be the order of the day and any economic bounce from reopening activity is likely to be, at the very least, partially offset by the specter of state and local job and spending cuts.


US Treasury 10 Year Yield


Meanwhile, the 10-year Treasury yield, as shown above, has finally started to move a bit with the most recent rally in equities providing the catalyst. As shown in the chart, however, the yield, while higher than in recent weeks, still remains firmly in the 0.54% -0.78% range that has prevailed over the last two months. Even with the 900-point Dow rally on Monday, the 10-year yield managed to lift only to 0.74% but that was immediately followed by strong overseas buying that pushed the yield back towards 0.70%. That action will likely continue for some time with any noticeable back-up in yield providing a convenient entry point for buyers, particularly of the overseas variety. Thus, we see little reason to suspect the aforementioned range will be disrupted anytime soon.


line graph icon  Housing Starts Down in April but May Foot Traffic Improving


April housing starts dropped -30.2% month over month to an annual pace of 891,000 compared to the consensus forecast calling for a -26% monthly decline, or a 900,000 annual pace. The percentage decline is the steepest for the series which dates back to 1959.  Also, the April decline is on top of the March drop of -22.3%. By region, the Northeast led declines with starts  down –66% versus March, the West down -43%, Midwest –20%, and the South –18%.  Building permits were not quite as disappointing declining to 1.074 million versus 1.000 million expected and 1.356 million in April, for a decline of -20.8% versus -25.9% expected.


US Home Construction


Overall, a disappointing read that is added to the list of historically bad April reports. There are some glimmers of hope amongst the gloom, however, as anecdotal reports point to increased foot traffic in a number of different locales in May. The online realtor Redfin is reporting increased online inquiries versus March and Zillow is also reporting similar upticks in search and inquiry requests. This corresponds with increased routing requests from various GPS-related apps in the last few weeks. Meanwhile, the weekly MBA Mortgage Applications Survey has seen purchase applications post weekly increases over the past five weeks. That points to increasing sales activity that should start to be reflected in new and existing home sales in May and June.


bar graph iconAgency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.30 0.50 0.65 0.82 1.55 1.92
0.50 0.29 0.48 0.63 0.80 1.42 1.82
1.00 0.28 0.45 0.60 0.75 1.38 1.76
2.00 0.35 0.50 0.63 1.20 NA
3.00 1.10 NA
4.00 1.03 NA
5.00 0.98 NA
10.00 NA


Tags: Published: 05/20/20 by Thomas R. Fitzgerald