30 Year Fixed Mortgage Yield Plumbs Fresh All Time Lows
For the few, the proud, the stuck in the 19th century, with an "originate to hold" business model (such an anachronism when originate to distribute by hedge funds, pardon, banks is all the rage), the latest data by Freddie Mac, in which the 30 Year Fixed just dropped to a new fresh all time low of 4.56%, down 1 bp from the last two weeks, is about the worst news possible. While the short end is still cheap (and in the case of 2 Year, near record), the ongoing flattening is a death knell for anyone who still relies on funding curves to a some profit. As the Bloomberg article pointed out earlier today, the 60 bp tightening in the 2s10s is a huge impact to P&Ls, which is now actively reverting profits afforded to financial companies in 2009 and early 2010. Soon enough, the Fed's active management of the yield curve will force banks to come up with new and improved ways to pinch pennies from US consumers now that the profitability margin on the curve has been cut by 25% in a couple of months. Alas, that would mean the risk of inflation would have to be taken seriously. In its absence, look for flattening to continue as all on the wrong side of the trade continue capitulating, and making the future for JPM, Wells and BofA uglier by the day.