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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 February Coupon is up +16 BPS with 60 minutes left to trade.
Trade Balance: This data directly goes into the GDP calculations. The December Goods and Services Trade inBalance was a deficit of $-67.4B which was very close to the consensus estimates of $-68.5B
Consumer Credit: The December Consumer Credit Change was much lower than expectations, rising by another $11.6B vs est. of 25.0B
The Talking Fed: Fed Chair Powell said that disinflation “has begun” but its going to take time and more importantly, that “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in.”
Treasury Dump: We kicked off three days of dumping our debt into the marketplace with today’s shorter term 3 year note. It was a pretty weak auction. $40B went off at a high yield of 4.073%. The bid-to-cover ratio was 2.33
Central Bank Palooza: The Reserve Bank of Australia raised their key interest rate by 25BPS to 3.35% which was widely expected.
On Deck for Tomorrow: Weekly Mortgage Applications, 10 year Treasury note auction.
Fed chair Powell this afternoon said the labor market’s surprising strength underscores why the central bank thinks it will face a longer battle to bring inflation down more than many investors have been anticipating. His press conference last week was prior to the Jan employment on Friday, asked whether the strong jobs would have changed his inflation outlook and what now appears at least two more increases. Hiring accelerated in January was “certainly strong—stronger than anyone I know expected,” he refrained from answering. On the 517K increase in jobs in January; “It kind of shows you why we think this will be a process that takes a significant period of time.” It’s not going to be, we don’t think, smooth. It’s probably going to be bumpy,”….” we think we’re going to have to do further [rate] increases, and we think we’ll have to hold policy at a restrictive level for some time.” Powell continued to say it is all data dependent; after his discussion today some already wondering whether the Fed would go 50 bps instead of what had been the view of 25 bps. The 3 month T-Bill now yields 100 bps higher than the 10 year note.
Prior to the discussion the 10 year yield declined 4 bps to 3.60% from 3.64% on the day, after that though the 10 shot back to 3.67% +3 bps. MBS prices improved for about an hour then retreated as the 10 increased. A little improvement from morning levels at 4 pm.
Treasury sold $40B of 3s this afternoon, as we note this morning, we expected a weak auction and that is what we got. IN WI trading the yield 4.033%, at the auction 4.073%. The cover 2.33 was weak compared to the last 12 3 year auctions at 2.53, (last month’s 3 year auction cover 2.84) indirects took 59.1% compared to 59.9% average. Expect tomorrow’s 10 year auction to also be soft. Recent dollar strength weakens demand.
Atlanta Fed GDPNow improved Q1 growth from 0.7% on Feb 1st to +2.1%; driven by the Jan employment job growth.
Tomorrow weekly MBA mortgage applications, Treasury will auction $35B of 10 year notes at 1 pm.
