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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:30 EST – Our benchmark FNMA MBS 6.00 April Coupon is up +3 BPS with 30 minutes left to trade.
Inflation Nation: The headline March CPI was lighter than expected, rising by 0.1% vs. 0.3% on a MOM basis and 5.0% vs. est. of 5.2% on a YOY basis. However, when you strip out food and energy, the Core CPI matched expectations by growing by 0.4% vs. est. of 0.4% on a MOM basis. YOY, it was up 5.6% vs. est. of 5.6%.
The Talking Fed: We will got the Minutes from the last FOMC meeting at 2 pm ET. You can read the official release here. Here are a few key highlights:
• Several participants noted they considered whether it would be appropriate to leave rates unchanged at this meeting.
• However these participants also noted actions taken helped calm conditions and lower near-term risks, allowing them to judge an increase as appropriate.
• Pre-meeting data indicated slower than expected progress on inflation.
• Participants agreed there was little evidence pointing to disinflation for core services excluding housing.
• The Fed staff (hired internal economists and not FOMC members) projected a mild recession starting later in 2023.
Treasury Dump: We had our 10 year note auction at 1:00. $32B went off at a high yield of 3.455% and a bid-to-cover ratio of 2.36
Central Bank Palooza: The Bank of Canada kept their key interest rate at 4.50% for the second straight meeting which was expected.
On Deck for Tomorrow: 30 year Treasury Bond auction, Initial Weekly Jobless Claims, PPI.
Volatility this morning on inflation due to March CPI, initially the 10 year note yield declined 7 bps to 3.35% and MBS prices increased 25 bps from yesterday’s close. At 9:30 am ET when most lenders priced for the day increases as much as 45 bps from 9:30 am yesterday, by 10 am the party was over and interest rates began climbing back, MBS prices declined. The 10 spent the remainder of the session +2 bps and MBS prices +16 bps. The volatility this morning generated re-pricing from lenders that set prices at 9:30 am.
CPI inflation did decline as expected all but the annual core (excluding food and energy) that increased from 5.5% in Feb to 5.6%. After the initial reaction cooler heads gathered around the camp fire to agree that the decline in inflation in March was not significant enough to stop the Fed from increasing the FF rate by 25 bps on May3rd. The core consumer price index — which excludes food and energy and is closely watched by the Fed — rose 0.4% from the prior month following a 0.5% gain, in line with economists’ estimates. Yet key measures of housing costs posted the smallest monthly increases in about a year and grocery prices dropped, the report from the Bureau of Labor Statistics showed. Traders still largely bet on a 25 basis-point rate hike at the Fed’s May meeting while maintaining wagers the central bank will cut later this year.
The FOMC minutes released this afternoon implied the Fed expects recession later this year. The decision to increase rates was broadly supported by FOMC colleagues, with all officials backing such a move. At the same time, the release indicates policymakers were less than fully committed to another move in May, as they saw the need to assess incoming data on how the bank turmoil was impacting the economy. The banking crisis slowed the aggressive attitude but as bank problems have dissipated the FOMC back to teasing markets about what it will do at the May meeting.
Tomorrow March PPI (producer price index); the estimates: month/month 0.0% from -0.1%; month/month core +0.3% from 0.3%. Both increases from February.
Also, tomorrow weekly jobless claims, expected 233K from 228K the prior week. And Treasury will auction $18B of 30 year bonds.
Treasury sold $32B of 10s (9 year 10 mos.) this afternoon, the WI trading prior to the auction 3.435%, at the auction 3.455%, the cover at 2.36 compared to 2.42 average, indirect bidders took 63.0% compared to 64.9%.
