Wall Street Webcasting has prepared and provided for you an exclusive broadcast of Wells Fargo Securities own, Rich Gordon. Gordon is highly recognized for his weekly narrates regarding the fixed income strategy at Wells Fargo Securities ( NYSE: WFC). This week, Gordon discusses the Fed’s ‘no tapering’ decision and what affect it is having on the economic growth.
Our leaders in Washington have recently made some decisions that abandon the best interests of the American people collectively; however, most are optimistic that the impasse will be resolved within a few days. A result may very well be a shut down in the Federal Government, which could have substantial negative effects on many aspects of economic growth: “A shut in of 2 weeks will shave approximately .3 % of the 4 th quarter GDP, which our economics group currently estimates at 2.6%, assuming no shut down.” Furthermore, the VIX Index has elevated over 400 basis points, and the S&P has backtracked close to 3%, since it hit its highest level just 3 weeks ago.
The spread sector that has gotten the biggest boost from the Fed’s ‘no tapering’ decision is agency NBF, with mortgage origination rates taking a climb of more than 100 basis points in 2013. Mortgage application and production declined by more than 50% since May, and several major mortgage originators and servicers have reduced head count.
Gordon concludes that there is not nearly enough supply to meet demand right now, which may result in tightening spreads in OAS and “very rich dollar roles.” There is another 15 basis points of upside until spreads return to the richer levels seen during the first half of the year.To hear a more in depth explanation of recent trading patterns, and what other affects the late economic data may have, please tune into Wells Fargo Securities’ latest video.