MBS Day Ahead: Positive/Negative Potential Outcomes; Why This Time is Different

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Posted To: MBS Commentary

It will come as no surprise that I feel the level of discussion about 10yr yields being at 3% is overdone at best, and misguided at worst. Actually, it's clearly overdone, so let's talk about how it's misguided by taking a quick inventory of a few fundamentals in play the last time rates crested 3% compared to those same fundamentals now. CORE CPI INFLATION THEN: 1.6-2.0 NOW: 2.1 AVERAGE (6-quarter) GDP READING THEN: 1.5-2.4 NOW: 2.6 (could be higher on Friday) STOCK PRICES THEN: S&P closed out 2013 around 1850 NOW: 2634 at yesterday's close FED POLICY STANCE THEN: Tapering announced, but reinvestments remained and rates were pinned at 0-.25 NOW: Reinvestments being tapered (more to come). Fed target: 1.5-1.75% and more hikes foreseen OTHER CENTRAL BANKS THEN: Europe had…(read more)

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