It was another volatile week on Wall Street as bond yields drifted higher and then fell. Inflation remains elevated and Covid-19 continues to wreak havoc on the supply chain and logistical delivery of goods which is a big deal given a great majority of the U.S. economy is consumer-driven.
There was some very good news on the pandemic this morning as Merck announced very positive results from its oral antiviral treatment for Covid. Perhaps the threat of Covid will soon be behind us we all look forward to a return to a more normal way of life.
Congress is grappling with two major spending bills: one aimed at infrastructure and the other focused on societal benefits. Both packages are enormous and should be carefully thought out. The debt-to-GDP ratio is already highly elevated. Each side of the aisle bears responsibility for spending through the years, but now, we are talking about trillions upon trillions of dollars of debt. It will be interesting to see how the bond market responds to the bill’s (or bills’) passage. For now, bond traders have not been bothered about these proposals, and some might argue the way bonds are responding, these bills may not pass or they may end up quite diluted.
Core inflation came in at over a 25-year high this morning. Fed Chairman Powell spoke about his frustration with the ongoing inflation problem but reiterated that the Fed believes inflation will temper in the coming months as the supply chain issues are smoothed out. While we certainly hope inflation does not run hotter for longer, there are some signs that inflation is not going away anytime soon. Once businesses raise prices, these prices remain intact absent a major recession. Also, wage inflation is trending nationwide as many businesses have raised their minimum wages and even offering signing bonuses to attract employees. Powell has the confidence of bond traders still or yields would have spiked this morning after this inflation report came out.
The alternative mortgage market remains very busy. As a leading broker of niche mortgage products in California, we are helping many self-employed borrowers, foreign buyers, and real estate investors obtain financing with attractive interest rates and terms. Our new CDFI program, which does not require a borrower to provide income or employment records, has been especially helpful. These loan amounts are good for up to $3 million and interest rates start in the low 4-percent range for interest-only.