Russia’s debt has been downgraded to ‘junk bonds‘ by rating agencies Fitch, Moody’s and S&P. There was much speculation that Russia would miss their $117M payment after Russian Finance Minister told news agencies they might not deliver and Putin made a decree that allowed Russia to repay creditors with rubles instead of foreign currency (much of which has been frozen). Nevertheless JPMorgan Chase did receive Russian payment this week in US dollars. Russia has an outstanding debt of approximately $40B and they haven’t missed a payment in more than a century since the Russian revolution. If they were to default on this debt they would find themselves shut out of global markets (this happened to Argentina) and could scare US investors from foreign markets (many experts feel there won’t be a major impact as other emerging markets have not invaded other countries). Worth noting that Russia has been fairly isolated since they annexed Crimea in 2014. Although many countries have placed financial and trade sanctions on Russia there are still many countries buying oil from them in foreign currencies which will help them manage their debt as the ruble value has declined 30%.

Mortgage Rates – increased slightly this week as the price of Mortgage Backed Securities declined for the 11th consecutive week. Rates are up approximately 1.25% from this time last year.

Home Sales – slowed down by 7% in February to a 6.02M annualized pace. Year over year home sales are only down 2.4% when rates are over 1% higher, homes are 20% more expensive, and inventory is at a record low. There are approximately 870,000 homes for sale which equates to 1.7 months of supply (if homes continued selling at their current pace without any new listings it would take 1.7 months to exhaust the supply). Homes were on the market for an average of 18 days in February. First time home-buyers accounted for 28% of sales, cash buyers, 25%, and investors 19%. Foreclosures and short sales accounted for less than 1% of all transactions.

Yield Curve Inversion? the yield curve inverted on the spread between the 10-Year and the 7-Year treasury yield. That means that you could get a better return on the 7 year treasury than the 10 year (so why would you ever buy the 10 year?) Historically yield curve inversions have been used as indicators for recession (see the 10-year minus 2 year – grey areas on the chart are recessionary periods). We often see an inversion in the yield curve when the Fed hikes their interest rate to stave off inflation.

Fed – the Fed hiked the Federal Funds Rate by 0.25% this week as anticipated. Remember the Fed Funds Rate is a short term rate that banks lend each other money at. This rate influences HELOC’s, auto loans, credit cards, and business lines of credit. By increasing rates they hope to slow down the economy and the pace of inflation. The Fed also released their recent meeting minutes. The minutes showed a huge change from the previous month’s dot plot (an anonymous survey of Fed voting members asking where they see rates in the future). Previously members anticipated approximately 4 rate hikes in 2022 to bring the Fed Funds rate to 1.0%. Now members anticipate 8 rate hikes this year bringing their rate up to 2%. Since there are only 6 meetings left this year that indicates that we would see a 0.50% hike after one of the meetings. Normally this would be a good sign for mortgage rates as it would be anti-inflationary but the Fed also commented during their meeting that they would start to reduce their $9T balance sheet at a coming meeting. The Fed holds a ton of MBS. Reducing their balance sheet would open up supply of MBS, lower their price, and cause upward pressure on mortgage rates.

Loan Performance –with unemployment down and home values up, home owners equity continues to grow. Generally when people have equity in their homes they are more likely to make payments and protect that equity. Delinquency rates are down 2.4% year over year to the lowest overall delinquency rate since Jan 1999.

Mortgage Applications to purchase homes increased 1% last week but are down 8% year over year. If you factor cash buyers purchase volume is down closer to 4%. Refinances fell 3% last week and are down 49% year over year. Refinances are now making up less than 50% of transactions.

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