Dollar down, mortgage delinquencies up
August 18, 2020
–Despite a record high in Nasdaq, yields eased and the curve flattened. Tens fell 2.6 to 68.2 and 2/10 to 53.3, down 2.8. The dollar index is making a new low this morning, currently at 92.54 with EUR printing 119. Gold and silver continue to recapture the ground lost last week, but aren’t yet at new highs. Bitcoin made a new recent high yesterday but has taken a breather today. However, TYU is still up slightly this morning at 139-12, perhaps due to US/China issues or other geopolitical flares like Belarus.
–Housing Starts this morning expected +5% to 1245k. Not that there’s any connection to the two, but the Mortgage Bankers Assn notes ‘Mortgage delinquencies spike in the second quarter of 2020’. “The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.22 percent of all loans outstanding at the end of the second quarter of 2020, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.” …up 369 bps from one year ago. FHA loans are seeing a delinquency rate of 15.7%.
–It’s worth a mention that vols are much higher post-election than for options expiring before November. This shouldn’t be particularly surprising given moves seen after the 2016 election. As an example, TYX (Nov) options expire Oct 23. The atm straddle is about 3.25% while Dec options, which expire Nov 20, are 3.8. The same dynamic is true in ED midcurves. (Of course, everything is ‘cheap’ in rates). There was a BBG article yesterday that suggested the Fed might overtly change inflation targeting from a cap of 2% to a “make-up” strategy of allowing overshoot. This has been a continuous theme in Fed speeches and isn’t much of a surprise, although it might be announced at the Sept FOMC meeting. If so, that might make Oct midcurves, which have already been depressed relative to post-election expiries, a reasonable Fed play. For example, 2EV 9975 straddle settled at just 9 vs EDZ’22 at 9973.0. 2EV 9962/9950ps settled 1.25. (Thanks BC).
