Treasury Secretary Wants Lower for Longer

Stocks are higher and Mortgage Bonds are slightly lower to start the day.

Yesterday, Bonds had a nice rally as a result of Treasury Secretary Scott Bessent keeping new issuance of Treasuries more concentrated on short-term maturities.

This is a similar strategy to what Janet Yellen did, but the timing is very different. When Janet Yellen skewed most of the buying to the short end, long-term yields like the 10-year were a little over 1%. It’s true that shorter-term yields did provide some savings, but it was anticipated that rates would move higher. It would have been much more advantageous to pay a little more and lock in the slightly higher yield for 10 or 30 years. Instead, she bought short-term Treasuries and then rates moved up to 5% and we had to pay our debt at much higher interest rates.

Scott Bessent is doing the same thing but it makes sense this time, if you think yields are going to fall. Instead of locking in higher long-term Treasury debt, he is issuing shorter-term maturity Treasuries, so that when rates fall we can benefit.

Bessent also said that he and President Trump are focused on the 10-year Treasury and want to see lower long-term rates, which would be a good thing for the mortgage and real estate industries.

CoreLogic Home Price Index

CoreLogic reported that home prices were essentially flat, up 0.03% in December. Year over year, home prices are up 3.4%, which is unchanged from the three previous reports.

CoreLogic forecasts that home prices will fall 0.2% in January, but they upgraded their forecast over the next twelve months from 3.8% to 4.1%. They clearly must be feeling stronger about the housing market, as just two months ago they were forecasting 2.4%.

Initial Jobless Claims

Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose 11,000 to 219,000. This was a bit higher than the 213,000 expected, but still remains low.

Continuing Claims, or those who continue to receive benefits after their initial claim, rose 36,000 to 1.886M. Clearly, firings are muted, but once you are laid off it’s harder to find a job because hirings have slowed.

Jobs Report Strategy

Tomorrow’s BLS Jobs Report will be key for the markets. The estimates are that there were 170,000 jobs created in January and for the unemployment rate to remain at 4.1%.

This report will include adjustments to the population from the new Census data, which could have a big impact on the numbers. The population will likely have a significant increase, but the impact on the unemployment rate is unclear, because we do not know how many of those now counted were working. We do feel there is a good chance that the report is weaker than estimates and that the unemployment rate rises.

Technical Analysis

Mortgage Bonds closed above their 200-day Moving Average yesterday, but were stopped at the 100-day Moving Average ceiling. Bonds are now being squeezed in between the two levels. The 10-year made a big move below its 50-day Moving Average yesterday and has room to move lower until reaching 4.33%.

Technical analysis is always important, but will take a backseat to the Jobs Report tomorrow. Looking at all factors - Mortgage Bonds have had a very nice rally higher since January 14. It would not be a bad move to take some chips off the table and protect your customers ahead of tomorrow’s high uncertainty.