Morning Report: Trump threatens further tariffs on Canada
Vital Statistics:
Stocks are lower after Trump threatens Canada with more tariffs. Bonds and MBS are down.
Trump threatened to increased tariffs on Canadian goods from 25% to 35% if Canada did not help alleviate the flow of fentanyl into the US. “If Canada works with me to stop the flow of Fentanyl, we will, perhaps, consider an adjustment to this letter,” Trump said in the letter. “These Tariffs will be modified, upward or downward, depending on our relationship with your Country. You will never be disappointed with the United States of America.”
Goods that are covered under the free trade agreement are exempted, so I am not sure what is covered in this letter.
Yesterday's 30 year bond auction didn't go as well as the 10 year one on Wednesday. The Treasury Department sold $22 billion of 30 year bonds at 4.889%, with a bid-to-cover ratio of 2.38. Note yesterday I said that the 10 year auction yield was 3.62%. I forgot to include the big figure of 4. The actual yield was 4.362%.
The FHFA is considering the use of Vantage credit scores to qualify for a mortgage instead of FICO scores. A Vantage credit score is a lot cheaper to pull than a FICO score and also uses a broader-based model to derive a score. This means that Vantage scores are generally higher than FICO scores. From the Urban Institute: "We find, on average, VantageScore 4.0 scores are higher than Classic FICO scores, especially for refinance loans and for investor properties and second homes."
Credit scores in general have been supported because of the student loan suspension and the exclusion of buy now pay later loans. Over the next few months, these items will become reflected in FICO scores which should generally pull scores down.
We will see if the change in credit scoring from FICO to Vantage will cause an increase in defaults as marginal buyers begin to qualify for a mortgage loan. FHA loans have always been there for borrowers with low credit scores however few lenders will extend loans into the lower tiers.