The Treasury conducted the auction for the 7-year Treasury which printed the highest auction yield since 2009; 4.673%. The auction was “relatively well received” just as the two- and five-year Treasury auctions. It is believed the “violence” in the Treasury market since last week’s FOMC meeting has cheapened the debt to “attractive levels.”
The narrative is beginning to rise that the interest expense on the national debt may soon begin to crowd out other spending. In several months, according to Fitch the trailing 12-month interest expense on the debt will be over $1 trillion or about 17% of the federal budget. Two years ago, it was around $350 billion.
Washington is extremely dysfunctional and if history is a precedence, only a crisis will force any meaningful change.
The nation’s debt is on an unsustainable trajectory according to FRB Chair Powell.
Most of the surge mortgage rates had already occurred before this week’s Treasury auctions. About 2 years ago the average 30-year mortgage had an interest rate around 3.0%. June 2023 rates were hovering around 7.0%. Yesterday the headlines read “Mortgage Rates Rise to the Highest in More than Two Decades.”
Mortgage giant Freddie Mac stated the 30-year fix loan reached 7.31%, the highest since early 2000. Freddie Mac indicated a borrower’s monthly payment would be 58% more today than in early 2022 before the Federal Reserve started hiking its benchmark rate.
Ouch!
Realtor.com indicated buying a starter home is now more expensive than renting in all but three of the top 50 metro areas in the US. Homeowner affordability is at an all-time low given high home price, the result of low inventories, and surging interest rates.
This environment will change but the pivotal question is when and what will be the catalyst?
Following the auction of the 7-year Treasury, the Treasury market retraced all its losses and closed nominally higher. The nominal advance was a catalyst for a mixed rally on Wall Street with the technologies leading the averages marginally higher.
What will happen today? Inventory data, personal income/spending and the pivotal Personal Consumption Expenditures (PCE) data is released. How will the statistics be interpreted?
Last night the foreign markets were up. London was up 0.88%, Paris up 1.01% and Frankfurt up 0.98%. China was up 0.10%, Japan down 0.05% and Hang Seng up 2.51%.
Futures are up about 0.5% ahead of the key inflation data. The 10-year is up 5/32 to yield 4.55%.
