Treasury holds “Go Big” Stance

Good morning everybody,

We have some wild news in this morning concerning existing home sales and current inventory. From this time last year, existing home sales are up 26%. This does not even take into consideration the record number of new builds that have been going up. At the same time, housing inventory is down 24% from this time last year. This has lead to the 10%+ appreciation that we have seen. However, a deeper dive into this will further show the disparity that the pandemic has created between the upper and lower class. Lower end home sales are actually down 28% while $1m+ home sales are up 80%+.

Mortgage backed securities continue their steep fall that started at the end of January. Breaking through floor after floor because nobody wants to risk trying to catch the falling knife. One of the biggest reasons for the increase in mortgage rates is the fear of inflation caused by future stimulus spending. As we have talked about in previous reports, Janet Yellen has been very vocal about wanting to “go big” when it comes to the next stimulus bill. And she has doubled down on that message multiple times since. If the Treasury does “go big” on stimulus, we will likely see both taxes and inflation follow suite. The MBS market is already down 31 bps this morning. We continue to hold a strong locking bias.

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