If there is a kryptonite to the Superman of asset prices, Ben Bernanke, it is inflation and its direction over the months while the Fed continues to print more money will be the most important thing to watch. Today’s Aug CPI is expected to rise .6% m/o/m, the largest gain since June ’09 led by energy and food prices. The core rate is expected to be up a more benign .2% m/o/m. In the meantime we have crude above $100 today for the 1st time since May, gasoline prices at the pump the most since April and the US$ is getting hammered. The Fed succeeded yesterday in collapsing the spread between the 30 yr FNMA coupon and the 10 yr yield to a record low. The key though in the eventual direction of mortgage rates will still be the 10 yr and its yield today is just a few bps from the highest since May. Since late July when Draghi started the central bank intervention, the spread between the 10 yr yield and MBS has fallen by 40 bps but the 10 yr yield is higher by almost 40 bps and it’s why the avg 30 yr mortgage rate is unchanged during this time frame. Thus, the only thing that has really changed over the past few months is a move higher in stock and commodity prices and little change in what the Fed most wants to target and that being interest/mortgage rates. Interesting times indeed.

Category: MacroNotes

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6 Responses to “Eventual kryptonite and mortgage rates little changed”

  1. And don’t forget the gold kryponite to the SuperDollar…the stronger gold, the weaker the USD

    Indeed interesting times ahead. We’re on uncharted watters.

  2. VennData says:

    Hey Clark Kent, take off your dork glasses and look at the real world: the gov’t is assuming private sector debts in a deleveraging, where we are keeping interest rates low. What, would you rather fiscal policy cut by a third and interest rates raised? That is the alternative, that what you wish would have happened, or are you just gain-saying since you missed the rally with your right wing ideology?

  3. techy says:

    I still dont understand what $100 oil has to do with monetory easing in USA.

    Are we saying that FED is responsible for:
    1. Supply control or hoarding of commodities
    2. Consumption by the new middle class of 2billion+ in the china\india\etc..
    3. or maybe FED is forcing speculators to buy up commodities futures??

    or maybe as VennData says Idealogy and/or missing the rally and/or missing the rent on the millions in bank is making us miss the real picture??

    Cant imagine the plight of somebody being rich with 10 million but all of it sitting in cash waiting for deflation.(IMO this is what the FED is fighting, all those trillions sitting on the sideline not being invested to produce something)

    ~~~

    BR: Oil is priced in dollars. You makes dollars worth less, the things prices in them cost more.

  4. techy says:

    Dow theorist:

    You realize that weak USD is good for employment in USA?

  5. carleric says:

    The war against deflation is and has been over…..someone just forgot to tell Bennie….the biggest beneficiaries of this latest idiocy from the Fed is….Gasp!…the banks.

  6. gman says:

    A nation running as large a trade deficit as the US does should not fear a lower $.