March 22, 2023
🗓 Folks, it's Fed Day. For the first time in a while, there's uncertainty about the outcome, as our friends at Axios Macro noted.
- Until a pesky banking crisis came along, the vibe was "higher, for longer." Now it's more like, 🤷♀️ 🤪. Set your alarms for 2pm ET, when the policy decision is announced. The presser at 2:30 should be spicy.
Today's newsletter is 1,028 words, 4 minutes.
1 big thing: Bond market swings are wildest since '08
The current banking crisis has ignited some of the wildest swings in the Treasury market in years, Matt writes.
Driving the news: In recent days, the most widely watched gauge of bond market volatility — the ICE BofA MOVE index — surged to the highest level since the last major U.S. financial crisis broke out in 2008.
- The swings in two-year Treasury yields (charted above) are similarly at their most violent — to both the upside and the downside — since then.
Why it matters: Yields on government bonds help determine rates for everything from car loans to mortgages to multibillion-dollar corporate borrowings.
- When this market whips around wildly, financiers find themselves unsure of the right price to charge borrowers for the use of their cash.
- In periods of prolonged volatility, they pause lending altogether, creating a doom loop in investment and other economic activity.
What happened: Before the collapse of Silicon Valley Bank this month, "global macro" hedge funds were overwhelmingly positioned for the Fed to keep raising rates at a fast pace until inflation came under control, Reuters reports. These types of funds play in markets like currencies and government bonds, where prices are driven by big-picture economic issues.
- But when the banking panic broke out, people instead rushed for the safety of government bonds, pushing rates — which move in the opposite direction of prices — sharply lower.
The impact: Looking at losses, traders rushed to unwind their trades.
- That means those who had been betting on higher rates — and, therefore, lower prices — had to rush to buy bonds, supercharging the already big upward move in prices and downward dive in yields.
The bottom line: The rollercoaster ride reflects the general bafflement of investors, economists and traders during the current moment. No one knows how the brewing bank crisis will interact with the economy and the Federal Reserve's plans for interest rate hikes.
- What we're watching: The Fed, of course, which makes its interest rate announcement today at 2pm. Buckle up.
2. Catch up quick
3. Down payment down
Homebuyers aren't putting as much money down as they were at the height of the housing frenzy, Emily writes.
What's happening: The typical U.S. homebuyer made a down payment of $42,000 in January, the lowest number in almost two years, per a report out from Redfin this morning, provided exclusively to Axios.
- The median downpayment is now 10% of the purchase price of the house, off its peak of 17.5%, (which amounted to $65,000), in May 2022.
State of play: High mortgage rates changed the calculus around down payments.
- The rates crushed the market and drove a lot of people away, so there's less competition now. Buyers don't need to distinguish themselves from other bidders with big deposits.
- Background: When a lot of buyers are vying for a home, a chunky down payment is a sign to the seller that you're a safe bet compared to someone putting less money down, who could be stretching to afford a house — a sign that their financing could fall through.
Meanwhile, home prices haven't come down very much. They fell for the first time year over year this February and only by 0.2% from last year, according to a report out yesterday from the National Association of Realtors.
- Add higher rates to that equation and you get buyers facing higher monthly payments, who are more constrained in what they can afford to put down.
How they did it: Redfin analyzed country records in 40 of the most populous metropolitan areas in the U.S., looking at homebuyers who took out a mortgage.
The bottom line: First-time buyers who may not have been able to marshal the cash for a big down payment during the boom now have a shot at getting in the game. That's "one silver lining," as the Redfin report notes.
4. Banking crisis spillover
For most of this year, Americans have been feeling pretty good about their job security. That may have started to change, Axios' Kate Marino writes.
Why it matters: The banking crisis — and its uncertain knock-on effects — is hanging over the economy.
- The credit that flows from regional banks could tighten — which would slow the economy and potentially lead to job losses.
State of play: In polling conducted March 10-13 — amid the FDIC seizure of Silicon Valley Bank and myriad headlines about the health of the regional banking system — nearly 19% of adults polled by Morning Consult said they're worried about losing their job in the next month.
- That's up materially from 11% a month earlier — and is the highest in more than two years.
- Go deeper: Among high-income respondents (those making more than $100,000 per year) job loss fears were the strongest — at 24%, from just 9% in February.
But, but, but: This is one data point from one poll. And, curiously, Morning Consult's polling on consumer sentiment showed that measure largely unchanged.
- What we're watching: Whether these March jitters turn out to be an anomaly in the midst of a panicked weekend — or a more sustained uptick in job fears.
5. Bargains in San Francisco
After a lag, the work-from-home revolution is finally starting to show up in the data for office building rental rates, Matt writes.
State of play: Major markets like San Francisco and Manhattan — where long commute times seem to be driving the durability of the WFH lifestyle — have been hit the hardest.
- On the other hand, markets like Raleigh, Boston and Minneapolis — which have a higher concentration of health services, biotech and life science employment — seem to be faring well. (It's hard to do laboratory research from your home office.)
What we're watching: Whether the issues in the office market worsen due to balance-sheet stress at regional banks.
- Small and midsized banks (those not among the top 25) currently hold 67.2% of all outstanding commercial real estate loans, Emily recently reported.
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✨ Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.