The Fed Keeps Buying and Rates Stay Low

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It’s Jobs Week this week, meaning the ADP Private Payrolls and the Jobs Report for July will be released this week. Maximum employment is half the Federal Reserve’s mandate and it’s recent under performance is reason why the Fed says “now is not the time” as it relates to tapering.

Will the jobs data be strong enough to reignite taper talks? Or will it disappoint and give the Fed reason to continue buying bonds? We shall see.

Just remember, most financial media outlets are reporting that the Fed is purchasing $40B in Mortgage Bonds per month. That’s false. Just in the next two weeks, it will purchase up to $54B which comes to over $100B per month.

When the Fed eventually begins to tapers, and that day will come, it could b a shock to the market unless they orchestrate it in a way that the market is weekend off QE slowly. Only time will tell. One thing is for sure – if yields continue to decline in response to market forces, rather than just Fed buying – the taper talk will get louder.

Mortgage Bonds are slightly higher while the 10-yea yield has slipped to 1.21%. The German 10-year Bund has fallen to -0.46. Both are at levels not seen since February. If the 10-year moves convincingly beneath 1.21% – we could see an extended decline in rates.

It appears the Senate is going to approve a $550B infrastructure bill. The overwhelming policy response (Fed and Administration) is giving stocks a boost. Bonds are also shrugging off the additional supply and inflationary concerns – possibly because there is a sense the Fed will always be the buyer of last resort.

If rates are to stay low and maybe go even lower, buyers must move quickly. 56% of existing US homes that went on the market for sale in June 2021 are already under contract and has sold for more than original asking price, Redfin reports. In the last 5 years, the number of “owner” households has increased by more than 8 million while the number of “renter households has declined. Hopefully inventory starts to improve because there are a lot of people looking to buy right now.