Jamie Dimond, the CEO of JP Morgan released his annual newsletter to shareholders which had a much brighter outlook for the years to come than last years did. 2020’s letter warded of a “bad recession” where we could see GDP drop by 35%. This years does not only project growth, it projects massive growth on the back of proposed infrastructure spending by the Biden administration. Dimond descried the stage for this plan as a “Goldilocks moment” with the potential of huge economic growth, higher inflation and unfortunately for the mortgage market – rising rates.
Mortgage Backed Securities ended yesterdays climb up 17 bps and closed right above the 25 DMA that we talked about. This morning, they are up another 5 bps. That’s three green days in a row – something that we have not seen many times in 2021. Like we have said, it is clear that the MBS market remains on a downward trajectory. MBS’ may be holding in anticipation of the Fed meeting minutes that will be released this afternoon. However, nothing the Fed has said in recent meetings should give the mortgage market any hope of a trend reversal. These 3 green days are more of a “sideways victory” and should be looked at as an opportunity to lock in a rate before pricing falls back into the steep downward trend. The big immediate concern that we have talked a lot about is the year over year inflation readings that will be coming in very high because of the negative inflation that we had at the beginning of the pandemic. Inflation has obviously raised since then; however, some economists question whether or not it will last. The two big things that will put downward pressure on inflation once all pandemic relief programs end are the large unemployment rate as well as the fact that 21% of personal income in the US currently is government benefit money. While there are many inflationary forces in the market, one of the biggest hindrances to inflation is a decrease in wages which could be caused by a flood of workers entering the force once pandemic assistance programs come to an end.
Have an awesome day!