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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
4:00 EST – Our benchmark FNMA MBS 6.00 March Coupon is down -21 BPS with 60 minutes left to trade.
Inflation Nation: The newly formulated headline January Consumer Price Index (CPI) rose by 0.5% MOM which matched forecasts. December was revised upward from -0.1% to +0.1%. YOY, CPI was up 6.4% vs. est. of 6.2% but was lower than December’s pace of 6.5%. Core CPI (ex food and energy) increased by 0.4% on a MOM basis which matched expectations and now marks the 32nd straight month of MOM gains. YOY it was up 5.6% vs. est. of 5.5%. Services CPI soared to its highest since July 1982.
The Talking Fed: Richmond Fed President Barkin said “If inflation settles, maybe we don’t go quite as far but if inflation persists at levels far above our target then maybe we’ll have to do more.” Philly Fed President Harker said the Fed has more work to do to reduce inflation, but policymakers are getting closer to having rates restrictive enough to return price gains to a stable level.
On Deck for Tomorrow: Retail Sales, Weekly Mortgage Applications, Empire Manufacturing, Industrial Production and Capacity Utilization, 20 year Treasury Bond Auction.
Interesting day: inflation was lower than in Dec, higher than the estimates. The reaction, initially interest rates didn’t move on the 8:30 am ET release, then about 10:30 am selling drove the 10 year to 3.80% +9 bps and MBS prices down 41 bps. At about 1:30 pm rates started to back down, the 10 dropped back to 3.65% and MBS prices rallied back to being -17 bps, but once again the 10 increased and MBS prices fell 33 bps down 24 bps. It is an unusual trading day in interest rates to see that kind of volatility. For the day, the 10 year note had a 20 bp range.
Inflation forecasts were +6.2%, reported at 6.4%; there was no reaction because of the increase against forecasts because inflation in January was lower than 6.5% in Dec. Traders struggled, sell the 10 or buy it? At the end of the day inflation still well above the Fed’s 2.0% target and Fed officials have made it clear the Fed isn’t going to relent. The yield on the two-year Treasury yield jumped to 4.63% +9 bps after the latest inflation data, on track to close at the highest level since at least late November, according to Dow Jones Market Data. The two-year yield tends to be more sensitive to interest rate expectations. Want inflation? Go to Argentina where inflation is running at 98.8%.
Four Fed officials: Richmond Fed President Thomas Barkin and Dallas Fed President Lorie Logan and Philadelphia Fed President Patrick Harker and New York Fed President John Williams talking today. All implied the Fed will keep going even as inflation is slowly declining. “I am confident that the gears of monetary policy will continue to move in a way that will bring inflation down to 2%,” Williams said in a speech at the New York Bankers Association. “We will we stay the course until our job is done.” The combined comments were the reason the 10 year note increased.
Tomorrow Jan retail sales, after being negative in Dec even with holiday shopping (-1.11%) is thought to be +1.7%, excluding autos +0.7%. Jan industrial production +05%, manufacturing +0.4%, factory use 79.1% from 78.8%. Feb NAHB housing market index 37 from 35. NY Empire State manufacturing index -185 from -32.9 in Jan. Treasury will auction $15B of 20 year bonds.
All our near-term technical indicators are bearish, chart trend line, moving averages and the 9-day relative strength index. Today was volatile, with the near term technicals tilting against floating we will keep locked; started floating this morning but cut ‘em loose when MBS prices fell this morning.
