Current Trend Direction: Higher - appears 2022 rate peak was made

Advise Your Clients: Floating some files into the long weekend

Current Price of FNMA 4.5% Bond: $100.84, +50bp

Today may be the first day of the 2022 recession. Yesterday, the Atlanta Fed's GDPNow model showed a decline of 1% for growth in Q2 and comes after the -1.6% in Q1.

A few things happen when the economy is in a recession:

1. Long-term rates don't move higher
2. The Fed can't raise rates "expeditiously"
3. Energy prices are likely to move lower
4. Home price gains slow

Treasury yields are falling hard today. The 10-year yield has declined to 2.88% from 3.50% seen in mid-June. Mortgage Bonds have risen nearly 200bp since the big 0.75% fed rate hike. And the 2-year Note yield has fallen to 2.81% from 3.50% as well. The bond market, which controls the Fed, is sounding the alarm that the Fed can't hike rates as much as they want. 

Stocks had a terrible first half after the S&P 500 hit a record closing high in early January. The S&P suffered its worst first-half percentage drop of a year in 52 years, the NASDAQ had the largest first-half percentage decline in its history while the Dow suffered its biggest first-half percentage plunge since 1962.

It is appearing core inflation may have peaked. Yesterday's Core PCE was a bit light and another reason for the bounce higher. Longer-term inflation expectations in both the 5- and 10-year rates have fallen sharply. This will also help long-term rates.

There is no Fed support today. Speaking of the Fed - they shrunk the balance sheet by only $1.5B in June and is now still nearly $9T.

Technically, after the recent gains, Mortgage Bonds are now pressing up against resistance one  at the 50-day Moving Average ($100.90). The 10-year yield is 2.88%.

From a pipeline management standpoint and heading into the long holiday weekend, float most files with the rate peak likely behind us.