while we slept; spectacular 7yr auction; 1 in 5 home SELLERS DROPPING price (most since Oct '19); inflation expectations DROP; eco surprises NEGATIVE (#WINNING ?); stagflation; Memorial Day...
Good morning … I’ve gotten into this habit — for better or worse — leaning on ZH for data recaps (bbg visuals, links) and the snark.
Sorry. Not sorry.
If we don’t learn from (recent)history we’re doomed to repeat it so … A couple things from ZH on yesterday mornings data worth noting.
Labor Market Signals Weaken As Jobless Claims Hold Near 4-Month Highs and US Economy Contracted Even More Than Expected In Q1, Raising Odds Of Recession. This was then followed BY Pending Home Sales which, well, US Pending Home Sales Plunge To Weakest Since 2014.
This, combined with Kyle Bass comments (cnbc) comments, Kyle Bass: Fed Will Start Cutting In 2023 After US Enters Recession Later This Year. Okie dokie.
Kyle Bass aside, how about that
Spectacular, Blowout 7Y Auction Stops-Through With Best Metrics Since March 2020 Covid Crisis Peak
From ZH to Bloomberg, you’ll note same sort of shockingly GOOD description of demand
Huge Demand Powers Strong Seven-Year Auction
By Cameron Crise(Bloomberg) -- Surging stocks helped the when-issued 7-year bond build in a large concession over the last few hours, and it seems to have worked like a charm.Today’s auction was super-strong, stopping at 2.777% -- nearly 2.5 bps through the WI yield.
Bid/cover of 2.69 was the highest since March 2020 and 2.5 standard deviations above the one-year average. It pretty much all came from indirect bidders, who snaffled up 77.9% of the $42 billion sale, the highest ratio since early 2018 and nearly 3 sigma above average. With directs buying 15.8%, that left dealers with just 6.4% of the sale...unsurprisingly, the lowest ratio since our data begins. This result has lent a bid to the belly and bull-steepened the curve.
I’m sure this all coincidental. Especially the part where I may be perceived to be connecting dots between weak pending home sales and a stellar 7yr auction.
But then, REDFIN?
Redfin Reports Nearly 1 in 5 Sellers is Dropping Their Price, the Highest Rate Since October 2019
… “The picture of a softening housing market is becoming more clear, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates,” said Redfin Chief Economist Daryl Fairweather. “For now, mortgage rates have stabilized, and I expect prices to do the same. This will remove some uncertainty for buyers. That means that as long as a home is priced conservatively, it still has a good chance of selling quickly.”
… The monthly mortgage payment on the median asking price home declined slightly from a record high to $2,425 at the current 5.1% mortgage rate. This was up 42% from $1,708 a year earlier, when mortgage rates were 2.95%.
Full report HERE and … on with the show.
… here is a snapshot OF USTs as of 722a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
USTs are bull-flattening on muted activity and light news. Asia desk flows have seen light RM selling in intermediates (2k TY seller at 1am, 2.7k TY buyer at 3:35am), while volumes are focused primarily on 5y (~100% 30d ave vs 70% in TYs). Risk traded well in Asia, HSI +2.9%, NKY +0.7%, KOSPI +1%, while the BBDXY has stabilized near 5-week lows. Crude slightly lower -0.4%, Copper slightly higher +0.4%, while precious metals are trading firmly (XAG +1.3%) on the back of the retracement in real rates (10y RR -2.25bps). SPX futures are +10pts here at 7am.
… and for some MORE of the news you can use » IGMs Press Picks for today (27 May) to help weed thru the noise (some of which can be found over here at Finviz).
A couple more things / LINKS for you to consider ahead of the bond markets early close and Memorial Day weekend.
1stBOSTON updated FI TECHS where they would turn bearish 5s @ 2.57 (stop below 2.38), turn bearish 10s @ 2.54 and turn bearish 30s @ 2.82 (stop below 2.68)
BBGs weekly FIX showing,
… market-based inflation expectations have been plunging. After hitting a record above 3% last month, 10-year breakevens are on track for their biggest monthly drop since March 2020. The so called five-year, five-year forward — the Fed’s favored measure — is set to post its biggest drop in May since August 2019.
And one reason WHY this may be the case,
… economic growth is a good thing. But too much of that good thing will just continue to stoke inflation. With that perspective in mind, the slowdown in surprises is positive.
“It’s evidence that the economy is not running as hot as we thought it would prior to their effort to slow it down,” said George Pearkes, Bespoke Investment Group’s global macro strategist. “So in that sense, it’s a win.”
I don’t KNOW George, there, but … to suggest that in a sense, its a win ? Um, I’ve got issues with that but I’ll keep moving along.
BBG on STAGFLATION (mentioned in the news)
… While stagflation has been a talking point for much of the past year, it was hard to get too worked up about it with the blockbuster labor market recovery. And with the US unemployment rate sitting at 3.6%, it’s still far from an imminent threat. But a few storylines worth monitoring have emerged in the past couple of weeks.
Is this, in any sense, a good thing or a WIN, too?
How about the idea that savers are no longer being penalized when investing those savings at higher yields. WINNING. Junk yields approaching 8%
… In the aftermath, the US high-grade risk gauge dropped and junk bonds staged their biggest one-day advance in 18 months, good for a fourth consecutive day of gains. Even with the rally, US high yield is on track for a fifth straight month of losses -- a record streak. But with the average junk yield above 7%, dip buyers may be enticed.
“When you look at high-yield bonds yielding 6.5% to 8.5%, trading at 90 cents on the dollar, for a longer-term investor, that looks like a pretty reasonable risk-return alternative,” Margaret Patel, senior portfolio manager at Allspring Global Investments, told Bloomberg Television.
Still, caution abounds in primary markets. As reported by Bloomberg’s Jack Pitcher, investors are favoring large, frequent issuers with easily traded bonds over smaller companies that only tap the market once every few years. With liquidity deteriorating across asset classes, the ability to offload is an increasingly valuable prize.
“Not every name is getting great access to the market,” said Maureen O’Connor, global head of high-grade syndicate at Wells Fargo & Co. “We’ve definitely seen a bifurcation in terms of the premiums required to clear, say, a single A benchmark well known name versus say a low BBB, more one-off credit.”
Lots to think about and consider as you plan your week ending trades and TRADE your week ending plans. I HOPE to have some sort of weekend update after the dust settles from whatever happens today. Have a wonderful long weekend and remember,
… THAT is all for now. Off to the day job…