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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:00 EST – Our benchmark FNMA MBS 6.00 March Coupon is down -36 BPS with 60 minutes left to trade.
Taking it to the House: January Existing Home Sales were 4.00M vs. et of 4.10M which is down -0.7% from December and 37% YOY. The median home sales price did move higher on a YOY basis and Inventories were up 2.1% on a MOM basis and up 15.3% on a YOY basis and properties averaged 33 on the market vs. 26 days in December and 19 days a year ago.
Rosie the Riveter: The S&P Markit Manufacturing PMI was stronger than expected, 47.8 vs. est. of 47.3 and the Services PMI actually cracked above 50, 50.5 vs. est. of 47.2. The Composite was 50.2 vs. est. of 47.5
Treasury Dump: We kicked off three days of dumping our debt into the marketplace with our shorter 2 year note auction. $42B went off at a high yield of 4.673% (highest/worst since 2007) and a bid-to-cover ratio of 2.61
On Deck for Tomorrow: New Zealand Interest Rate Decision, 5YR Treasury Note auction, Minutes from the last FOMC meeting.
Interest rates increased today, after successfully testing 3.90% last Friday the 10 Friday hit 3.90% then rebounded to close at 3.82%. This morning more news that implies the economy remains strong, the FLASH Feb PMI index at 50.2 now in expansion territory above 50, the services sector index at 50.5; the highest indexes readings in eight months. Recent supply issues have improved, delivery times for inputs into factories are improving at a rate not seen since 2009. When the report hit interest rates spiked higher. Recent released data points have defied forecasts; the Jan job gains, declining weekly jobless claims, consumer confidence, wage increases and stronger than expected Jan retail sales, most recent releases have ben stronger than thought. Topping it off Jan CPI was better than expected last week. The labor market continues to defy forecasts.
The Fed has worried that inflation will become imbedded by consumers, regardless how high rates the Fed must go. The outlook is changing, until a week ago the thought that long term rates would hold as inflation decreases. Recent inflation measurements are taking that idea away as was evident in today’s break above a key support level at 3.90% after PMI went from contraction to expansion. The changing outlook is increasing the “r-star, may change the neutral rate for the Fed. After recent economic improvements traders are thinking the Fed will have to continue to increase rates longer than expected, maybe through the summer.
Jan existing home sales declined 0.7% as interest rates continue to increase, today the 30 year mortgage rate is being quoted at 6.87%. Existing-home sales fell for the twelfth straight month in January. The South and West regions registered increases, while the East and Midwest experienced declines month-over-month. All regions recorded year-over-year declines. The median sales price of $359,000, and 2.9 months of inventory. The median sales price is up 1.3% year-over-year, and inventory was up 1.6 months from January 2022.
Tomorrow weekly MBA mortgage applications, treasury will auction 5 year notes, and the FOMC minutes from the Jan FOMC meeting. The minutes get ink but between the meeting and now the situation may be changing, the minutes shouldn’t reveal anything we don’t already know.
Treasury sold $42B of 2s this afternoon, the auction was about what the averages are; call it normal demand, the rate 4.673%.
The 10 year note 9-day RSI approaching over-extended levels; expect volatility over the next few sessions. Any improvements won’t change the current bearishness, and the Fed may have to move rates even higher than was thought as recently as last week.
