Treasuries Remain Unfazed by April’s Equity Bounce
The focus of trading early in the week had been more on the outlook for reopening state economies and drug trial results for COVID-19 rather than current financial conditions. While that meant a risk-on market with equities recouping in April more than half of the 38% downdraft in February and March, fixed income has held in better than one might expect. That could be a function of Treasury investors at least glancing at those ugly economic numbers, and projections, and seeing less a V-shaped bounce and more of a U or W-shaped one. It also doesn’t hurt that the Fed is in all manner of fixed income markets in a big way, and likely to stay there for some time. While the FOMC meeting conveyed the clear message that they are fully committed to providing aid and comfort to markets and the economy for as long as it takes, Chair Powell was also clear in stating that additional fiscal stimulus is needed. Perhaps that’s a gentle jab at getting aid to states and municipalities passed, and soon.
Speaking of the Fed, the Wednesday FOMC meeting went pretty much as expected with no change in rates, including the IOER, and the focus squarely on combating the economic impact of the virus. With the Fed clearly engaged, one question might be when to expect a change in policy? The answer is probably not this year and maybe not next year. In the presser, Chair Powell described as “heartbreaking” the setback to minority and lower-income areas of the economy after the positive strides made prior to the virus. Combined with comments in regards to the successes in those areas during last year’s Fed Listens tours, we suspect he will keep his foot on the accommodative accelerator until much of the virus-induced damage is repaired in those last-to-recover areas, and with 30 million newly unemployed that will take considerable time.
While the Wednesday meeting didn’t unveil any new programs, or tweaks to existing programs, they did relax some terms to the still-unopened Main Street Lending Program yesterday. The Fed created the program to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic. After receiving more than 2,200 comment letters, adjustments to terms and eligibility expansion were announced yesterday. The table below highlights the new offerings. Businesses with up to 15,000 employees, or up to $5 billion in annual revenue, are now eligible. More details can be found here.
Mortgage Rates Hit Another All-Time Low
If you’ve managed to hang onto your job, and your future prospects look good, now may be an ideal time to consider refinancing your mortgage loan. Mortgage rates have fallen, once again, to the lowest on record. According to Freddie Mac, the average rate for a 30-year loan is now 3.23%, down from 3.33% last week and the lowest in almost 50 years of recordkeeping. The previous record didn’t last long as the rate touched 3.29% in early March.
With Treasuries continuing to rally, it’s likely to keep rates near these historic levels so don’t feel like you have to break quarantine and rush to your mortgage broker today. The pool of available purchasers has no doubt shrunk in the past month with jobless claims having now exceeding 30 million, and quarantines making it challenging to get out and shop and close on home sales. Thus, it’s a borrower’s market right now and likely to remain one for as far as the eye can see.
Jobless Claims Remain High But Trending Down
Initial jobless claims came were 3.8 million last week versus 4.4 million prior. The latest figure is the lowest since the first multi-million claims print back on March 20 and 44% off the peak. Continuing Claims moved higher to 17.9 million versus 15.8 million the week prior. There’s a one week lag between claims and continuing claims so expect the latter to continue higher, but it did come in below the 19.5 million forecast. States that had more than 100,000 in claims include California, Florida, Georgia, New York, Pennsylvania, Texas and Washington. The insured unemployment rate of 12.4% correlates to about a 25% unemployment rate in the monthly jobs report, but that will be for May as the survey week for April was back on the 12th, and that estimate stands at an already stunning 16.0%.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.08%||-0.02%||1 Mo LIBOR||0.37%||-0.20%||FF Target Rate||0.00%-0.25%||3 Year||0.320%|
|6 Month||0.09%||-0.04%||2 Mo LIBOR||0.69%||-0.34%||Prime Rate||3.25%||5 Year||0.394%|
|2 Year||0.19%||-0.03%||6 Mo LIBOR||0.80%||-0.19%||IOER||0.10%||10 Year||0.619%|
|10 Year||0.61%||UNCH||12 Mo LIBOR||0.90%||-0.07%||SOFR||0.04%|