UMBS down 10 bps to start the morning.  Stocks winning – S&P Futures up 24.25 points

Today’s only relevant econ data is the S&P Global (formerly Markit) PMIs.  While a bit hotter than expected, these are close enough to contraction territory (anything under 50) that it’s not likely to result in a big, sustained sell-off.

Treasuries are steadying after some of the market’s most prominent bears warned of an economic slowdown, stoking bets the declines have overshot and that the Federal Reserve will need to lower interest rates. Wild swings in government debt are unsettling investors as a resilient economy makes it hard to work out when the Fed will halt rate hikes. Surging government issuance and geopolitical tensions are also clouding the outlook.

S&P Global Services PMI =  50.9 vs 49.8 f’cast  [50.1 prev]

S&P Global Manuf. PMI = 50.0 vs 49.5 f’cast  [49.8 prev]

Billionaire investor Bill Ackman wrote a tweet that he had covered his short bets on Treasuries (meaning he was betting that yields would drop) and Bill Gross (of PIMCO fame) wrote that he’s buying short-dated interest-rate futures in anticipation of a recession by year-end.   The 10yr hit 5.02 yesterday and has retreated to 4.84 range – which is a big move.

I find it interesting that the Atlanta Fed GDP Now model sees 5.4% GDP growth in Q3. Look at the chart below, where the grey bars are GDP growth. 5.4% GDP growth is an exceedingly rare growth rate.

Home purchases are falling through at the fastest rate since last year at this time, according to Redfin. About 53,000 sales contracts fell through in September, or about 16%. Rising mortgage rates are a big driver, but there are other issues too. Buyers are extra cautious right now. They want to make sure they’re getting a good deal given how much mortgage payments have gone up, and when they don’t feel like they’re getting a good deal, they’re backing out reported Median asking rents fell 0.3% in Sept and are down 0.7% YoY.   Mostly due to the influx of new units.  Annual completion rates of multi-family are up 15% YoY.

Apartment List showed rents are down 1.2% YoY.

It is certainly encouraging to see a modestly positive day for the bond market in the wake of a decent 2-day winning streak and despite a modestly stronger PMI number this morning.  To see the 3 day move in the wake of 10yr yields hitting 5.0%+ for the first time since 2007 is perhaps slightly less encouraging.  Either way, the market is at least “pausing for reflection” here.  In other words, there’s no immediate plan to stampede up and over 5.0%, but neither do we have confirmation that rates have turned some epic corner in the bigger picture.  At the risk of falling back on the same old thesis: it’s data dependent.

UMBS closed the day up 22 bps – ending at 97.19.   Ginnies closed up 19

The U.S. has amassed a record $33T in debt with no signs of the deficit spending coming to end. This means our government will have to issue more Treasuries to collect the money needed to run the country. Every couple of weeks, the Treasury sells these bonds, however the buying appetite has been weak, so the Treasury Department has to pay more yield to attract the buyers.

Japan and China are the largest foreign countries in the world holding U.S. debt, with close to $1.5T between them. Both countries have been sellers of our bonds as opposed to purchasers of our debt. Why? Inflation. The U.S. dollar has been strengthening mightily throughout the year, causing foreign currencies to decline in value and making commodities and imports more expensive. China and Japan have been selling some of their vast holdings while using the proceeds to purchase their own currencies to limit the effects of inflation.

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