Oil Prices Hit Cycle High, Treasury Prices Head Lower

  • With the Treasury set to auction $21 billion in 10yr notes this afternoon, the market finds itself on the defensive yet again with the 10yr yield back over 3%, currently at 3.02%, off 11/32nds in price. In fact, 3-handle yields begin at the 5yr mark at 3.03% as inflation concerns, and just how many Fed rate hikes are in our future weigh on the market.


  • Oil is making a  new cycle high this morning at $120.45 per barrel of West Texas Intermediate, indicating no respite from high gas prices and that will continue to pressure the headline inflation readings.


  • Meanwhile, the consumer seems to be digging deeper into the wallet to fund those living expenses as well discretionary purchases. The Fed released the April Consumer Credit Report and it found total credit increased $38.1 billion from March which saw a $47.3 billion gain. Revolving credit (including credit cards) increased $17.8 billion after surging $25.6 billion in March. Those are the two highest months on record for revolving credit growth. Total revolving credit now stands at an all-time high of $1.1 trillion (see graph below).


  • So, as consumers confront higher prices, for the time being they are continuing to spend. With the savings rate dropping to the lowest since 2008, they are dipping into savings more and more, and also willing to use that credit card more and more. That will keep consumption going for now, but for how long?


  • The housing market continues to see slower activity with the weekly MBA Mortgage Applications for June 3 falling by -6.5%. Purchase applications fell -7.1% and refinance applications fell -5.6%. YoY purchase applications are down -20.5% while refi’s are down a staggering -75.3%. So, while the Fed is stepping back from the mortgage market via Quantitative Tightening, new supply will also step back given these application figures. That should provide some support for prices as the mortgage market navigates the beginnings of QT.


Total Revolving Credit Outstanding

Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.78 3.03 3.15 3.32 3.56 4.02
0.50 2.77 3.00 3.09 3.21 3.42 3.91
1.00 2.76 2.97 3.06 3.17 3.33 3.78
2.00 2.96 3.00 3.09 3.21 NA
3.00 3.04 3.15 NA
4.00 3.10 NA
5.00 3.06 NA
10.00 NA

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Published: 06/08/22 Author: Thomas R. Fitzgerald