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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 March Coupon is up +20 BPS with 60 minutes left to trade.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were once again lower than expected, 192K vs. est. of 200K. The more closely watched 4 week moving average is now 191K. Continuing Claims hover near year highs but pulled back to 1.654M vs. est. of 1.700M
GDP: The previously released 4th QTR GDP was revised lower from 2.9% down to 2.6% as consumer spending was lowered. Prices Paid were revised much higher from 3.2% to 3.7%
The Talking Fed: The Chicago Fed National Activity Index was very low but better than expected at 0.23 vs. est. of 0.3. We will hear from Bostic and Daly today.
Treasury Dump: We had a 7 year note auction today at 1:00. $35B went off at a high yield of 4.062% which is one of the highest rates on record for this auction. Treasury Secretary Yellen gave a speech were she updated/improved her economic outlook compared to where she was in the Fall.
On Deck for Tomorrow: Inflation Nation!!! PCE and Core PCE, UofM Consumer Sentiment, New Home Sales.
The 10 year note came back home today, trading below its support at 3.90% to 3.88%. Q4 GDP was slower than what was thought, at 2.7% down from 2.9% on the advance report last month and lower than what markets were thinking and weaker than Q3 2022. The good news for interest rates was in the details, when trade, government spending and inventories the demand (inflation adjusted final sales to private buyers increased just 0.1%, the weakest since the beginning of the pandemic. Household spending at 1.4% in Q4 led by slow spending on durable goods such as motor vehicles. Consumer spending was previously estimated as rising 2.1%. The momentary take away with traders; a soft landing may be in the cards. Wishful thinking for now.
It is an initial reaction with traders still focused on 3.90% for the 10 year note. Not the end all, recent new data points to strong consumer spending and the weekly claims this morning, another read under 200K at 192K, the third week in a row under 200K. The job market is strong, it is the lowest unemployment rate in more than 53 years. That, combined with upward revisions to fourth-quarter inflation, shows risks of more persistent price pressures. Q4 personal consumption expenditures increased 3.7%, more than 3.2% thought, ex food and energy +4.3%. No reason I can see that confirms or denies any soft landing for the economy with today’s data.
Tomorrow is key. Jan personal income and spending and inflation from PCE. Income expected to have increased 1.0% from 0.2% m/m, spending increased 1.2% in Jan compared to -0.2%. The inflation gauge, PCE (personal consumption expenditures m/m expected +0.4% from +0.1% in Dec, year/year though 4.9% from 5.0%. Core PCE m/m +0.4% from +0.3% in Dec, year/year 4.3% down from 4.4%.
Treasury sold $35B of 7s this afternoon. A soft auction, in WI trading at 4.047% prior to the auction, at the auction 4.062%. The other components about the same as the averages over the last 12 7 year auction.
Jan new home sales tomorrow along with U. of Michigan consumer sentiment index; both take a back seat to the PCE inflation and Jan income and spending at 8:30 before 10 am.
Float with the 10 year back below 3.90% is still risky, but we will take a little risk (not much) by holding a few rate locks. MBS prices better than initial pricing but we have noticed that afternoon price improvements that don’t trigger re-pricing fade away the next morning if prices are weaker. Lenders very conservative and it’s costing more to warehouse inventory.
