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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 May Coupon is up +5 BPS with 60 minutes left to trade.
Inflation Nation: The headline March PPI was much lighter than expected, decreasing by -0.5% vs. est. of 0.0% on a MOM basis and 2.7% vs. est. of 3.0% on a YOY basis. When you strip out food and energy, the Core PPI was also weaker than expected, down -0.1% vs. est. of +0.2%. YOY, it was up 3.4% vs. est. of 3.4%. While this data set was much lighter than expected, the prior month was revised upward significantly.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims increased to 239K vs. est. of 232K. The more closely watched 4 week moving average increased to 240K. Continuing Claims were 1.810M vs. est. of 1.814M and came in above 1.8M for the second straight week.
Treasury Dump: We has a 30 year bond auction at 1:00. $18B went off at a high yield of 3.661% and a bid-to-cover ratio of 2.36.
On Deck for Tomorrow: Retail Sales, Import and Export Prices, Industrial Production and Capacity Utilization and Consumer Sentiment.
It took a few hours for interest rates to move after PPI this morning, but rates edged higher this afternoon and MBS prices slipped. The rate markets are in complete equilibrium now, since the beginning of the week the 10 is essentially unchanged after digesting March inflation numbers from CPI and PPI. Inflation is slowing month to month but core annual CPI unchanged at 5.6% while core annual PPI +3.6% down from 4.4%.(prices fell by the most since the start of the pandemic). More evidence inflation is slowing, this morning no move to lower rates, suggesting traders still look for the Fed to increase rates by 25 bps. On the release of PPI this morning the 2 year note yield dropped 7 bps, by 3:30 pm +2 bps.
Tomorrow March retail sales expected to decline 0.4%, the same decline in Feb; excluding autos -0.4% from -0.1% in Feb. March import and export prices, imports expected -0.2% while exports also down 0.2%. March industrial production and capacity utilization, production +0.3% from 0.0%, cap utilization at 7.8% from 78.0%. M April mid-month consumer sentiment thought to be at 62.7 from 67.0 in March.
Markets consumed with the Fed’s move in about two and a half weeks (3/3/23). Going to say that way until then. The reaction today with PPI rate the lowest since the pandemic doesn’t imply that the Fed is ready to pause, in fact the way rate markets have been trading the last few sessions, presently the rate markets expect the Fed to increase. With lower inflation reports and after the knee jerk reaction last week to the weak JOLTS job openings that dropped the 10 year note to 3.28%, rates have been increasing since.
Short term traders (mortgage companies) it is prudent to keep away from risk. The potential of whipsawing is high, selling the day MBSs increases, holding when prices decline isn’t worth the exposure; there is no continuing trend to better or worse prices.
