U.S. Bond Yields Reject First Test Higher: Analysis

Crude moving higher

Alright, so this morning we saw the US Govt 10Y yields test our 4.37% area and so far it has been rejected:

We know that we have about $180Bn or so in supply with new 2Y, 5Y and 7Y issues coming online this week and it seems the yields for now have found a little bit of a plateau. We believe this area around 4.37% to be important for both camps here and its interesting that the yields have only moved up around 10bp since the equities have put in their bottoming attempt.

As far as the SP500 we will continue to watch that 5750 area for support now and we would suspect better sellers to be waiting up at 5916 area above with decent initial technical resistance at 5840 area. We may see sell side pressure here initially but stops will be close by just above but a range trade consolidation may take place between the 5750/60 area and 5840/50 area for now:

When we look at the Nasdaq futures and the fib technical data there, you can see that the Nasdaq is closer to the 38.2% retrace than the 50% retrace like the SP500:

This is due to the steeper decline in the Nasdaq, and the 38.2% area of 20350 may prove to be a bit sticky for now and subsequent range trading could transpire around this area.

Another chart we are watching is May Crude Oil as the CTA Markets sentiment indicator is now leaning long there with the recent move above our $68.32 area. Will see if this sticks or if sellers regain control here and push it back below that area:

Alright one last item here we saw Zhedge post this housing supply chart and we are certain this is welcomed news by many. The supply of homes has to increase in order to alleviate some of the lack of affordability pressure, so this is a good sign:

We also saw this on X yesterday a posting by LGI homes and “zero down” posted by at Nickgerli1:

LGI homes is a Nasdaq listed company (LGIH), we did some digging, they have a $1.2Bn credit facility tied to a +185bp over SOFR interest rate. We didn’t see the ending 2024 data for this facility but end of 2023 was about $580mn worth of unhedged credit tapped. SOFR has averaged about 4.6% over the last 6 months, so assume they are paying at least 6.5% on this nut. Their stock has been getting slammed but its crazy to think they can subsidize “zero down” like that, well I guess you have to do what you have to do!

Anyway, the stock is below post Covid breakout level down from $178 high now trading $72, Home Sales Rev -6.6% 23 to 24, Notes Payable +19% given their last annual report. What is also insane is that they have $1bn in credit facilities unhedged so with short rates moving +300bp and not having interest rate hedges, I estimate that it cost the firm probably $20m annually...I suspect a lot of these builder/developers don't hedge interest rates and now its kicking them in the rear...why they don't hedge is beyond me, maybe decade of ZIRP complacency has lulled them to sleep!

LGI Homes is -62% off its highs:

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