Daily Market Wrap
November 10, 2017
Stocks have ended the day lower. The Dow closed down 39.73 at 23,422.21 and the S&P 500 closed down 2.32 at
2,582.30. Mortgage Bonds are ended the session lower and the 10-year Treasury Note Yield broke above a key
level at 2.385%.
Bonds went through their monthly coupon rollover last night. This occurs each month because Mortgage Bonds
are finite. They have an end term, such as 30 years. Therefore, each month a new 30-year period begins. This
new 30-day extension is reflected in an adjusted rollover price. This rollover does not impact your rate sheet
pricing. The effect of yesterday’s rollover was -22bp.
In economic news, Consumer Sentiment, or how consumers feel about their financial conditions and the economy,
dropped from 100.7 to 97.8. This was also beneath expectations of 100.7.
Yesterday, the Senate unveiled a tax plan that would cut the corporate tax rate and make tweaks to the individual
tax system. There are now two separate tax plans going through the House and the Senate. Below is a chart that
compares the two:
One difference between the two is that the Senate plan keeps the $1 Million Mortgage Deduction, as opposed to
reducing it to $500,000. While that sounds good, the standard deduction is to be doubled in both plans. Why is
this important? Everyone can take the standard deduction. And currently, only about 24% of individuals benefit
above and beyond that deduction by taking the Mortgage Deduction. But with the standard deduction being
doubled, only about 4% of individuals would benefit by taking the Mortgage Deduction. Essentially this wipes out
the Mortgage Deduction.
Consumer Sentiment: Actual = 97.8; Consensus = 100; Prior = 100.7
Next week is a busy week, highlighted by Inflation and Housing Data. We will receive the Producer Price Index &
Consumer Price Index Inflation reports, as well as the NAHB Housing Market Index and Housing Starts.
The Mortgage Bond chart is a bit skewed due to the rollover, but Bonds closed just above support at 102.428 after
breaking beneath it earlier. More importantly, the 10-year Treasury Note Yield has broken above the pivotal
2.385% level and is a negative sign for Yields and Bonds.