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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 April Coupon is up +38 BPS with 60 minutes left to trade.
There were no economic events today.
The Running Man: The bond market continues to benefit from concern over the stability of the financial banking system as Silicon Valley Bank and now Signature Bank have both bit the dust with concerns over First Republic, Pacific Western Bank and several others on the watch list. Signature Bank had over $100B in deposits leave the bank and is now the 3rd largest bank failure in U.S. history.
On Deck For Tomorrow: Consumer Price Index (CPI)
Last Thursday the consensus was the Fed would continue to increase the FF rate to 6.0% with 50 bp increase next week. Then came Friday, a big bank failure, Silicon Valley Bank, $209B in assets. Today all banks are being pressured, the money center banks down but the big declines are in regional banks as rumors fly more banks are in trouble. The Washington regulars are all involved from FDIC to the Fed, at the end of the day the question that hangs over the markets is are there more banks about to fail? By the end of the day traders and investors thinking about one 15 bp increase by the Fed then it will end its tightening; tomorrow that could change, today its chaos with analysts, economists, and traders. Following any surprise panic sets in as markets and pundits scramble to plug the dam. FDIC removed limit of guaranteed safety on bank deposits. Two banks being closed, SVB and Signature Bank.
The Fed isn’t talking outright today (officials locked down), but the issues now are the Fed may have moved too quickly and bank management was inadequate dealing with rapidly increasing rates and hedging the potential risk. That is the case with SVB, all fired, markets left with new concerns that there may be many more banks with poorly hedged risks. Last week Jerome Powell in his Congressional testimony sent a bullet across the bow of banks saying the Fed is likely to increase the pace and amounts of its rate increases, a few days later the failures occurred. The momentary fear and panic will settle, they always do, but how long and how deep is the problem playing out, higher and higher interest rates on deposits won’t be settled for weeks. Wait until politicians get revved up and the handwringing begins.
Until Friday the focus was on the Fed, how high rates will have to go, will the speed push the economy into recession. The debate seemed to be evenly balanced. Now in the heat of the moment we are hearing some chatter the Fed may be finished increasing rates after next week. That idea will change the Fed’s plans by 180 degrees and not just the Fed, what are banking issues in foreign countries. In Europe there are not as many smaller banks. Lorie Logan, the Dallas Fed president who previously ran the markets division at the New York Fed — making her the most market-savvy of top Fed officials — has consistently argued for a more measured approach to rate hikes. “A slower pace is just a way to ensure we make the best possible decisions.”
The next few days are likely to be volatile, already today MBS prices are lower now than at 9:30 this morning, and the 10 year note yield is higher than at the open this morning at 3.40%, now 3.53%. The stock indexes traded both higher and lower today, settling with little change. Opinions will be flying, as they are today, one of the people I have confidence in, Jeff Gundlach, DoubleLine Capital, out with the Fed will increase the FF rate by 25 bps next Wednesday, saying the economy will fall into recession in the next three to four months. Ironically, the Fed is now in its self-administered quiet period when no Fed official can speak until after the FOMC meeting. Just speculating now, but we doubt this banking issue will expand to a crisis that would mirror the financial collapse in 2008 when the entire financial system almost collapsed, and interest rates will continue to stay high. Take your shot. Technically, the 10 year note declined to 3.40% the low in yields set four times since last December. Tomorrow Feb CPI, expected at 0.4%m/m from +0.5% and year/year +5.5% from 5.6%. The dollar weakened, gold increased, and crude oil declined.
