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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 February Coupon is up +9 BPS with 60 minutes left to trade.
Taking it to the House: Weekly Mortgage Applications increased by 7.4% after falling -9.0% the prior week. Purchase Applications were up 3.1% and Refinance Applications jumped 17.7%
The Talking Fed: Fed Governor Christopher Waller warns that interest rates could go higher than expectations and said “We are seeing that effort begin to pay off, but we have farther to go.” Minneapolis President Neel Kashkari said interest rates will need to rise higher to combat the wage growth that is helping keep some elements of US inflation elevated. New York Fed President John Williams says that the Fed’s latest Economic Projections (which show a terminal rate of 5.25% before pausing) are still “very reasonable”. Fed Governor Lisa Cook said I think we are not done yet with raising interest rates.”
Treasury Dump: We had the 10 year note auction today at 1:00. $35B went off at a high yield of 3.613%. The Bid-to-cover ratio was 2.66 which is the highest since Feb 2022.
On Deck for Tomorrow: Initial Weekly Jobless Claims, 30 year Treasury Bond Auction
Very quiet today in the interest rate sector, the stock market continues wide trading range swings, yesterday the key indexes improved, today under pressure. There were no data points today of substance other than weekly MBA mortgage apps that were up 7.4%, re-finances increasing 17.7%.
Fed Bank of New York President John Williams, Minneapolis counterpart Neel Kashkari, as well as Governors Christopher Waller and Lisa Cook, (I erred this morning saying Cook was San Francisco Fed). All of them were reading from the same play book, adding more support for Chair Powell’s comments yesterday. The Fed has a long way to go before inflation is tamed and the Fed won’t be dissuaded in its plan. FF rates now seen as high as 5.1%, currently 4.50%/4.75%; some outliers today thinking the FF rate may increase to 6.0%.
Treasury sold $35B of new 10 year notes this afternoon, the auction was met with very strong demand unlike yesterday’s 3 year auction. The stellar auction suggests that yesterday’s weak 3-yr note offering was an aberration, likely due to the timing of Fed Chair Powell’s speech. In WI trading prior to the 1:00 pm auction traded at 3.643%, at the auction the yield was 3.613%. The bid/cover at 2.66 compared to the average of the last 12 10 year auctions at 2.43; indirect bidders (large foreign investors) took 79.5% compared to 65.2 average, domestic buyers took 15.2% down from 18.1% average. One month ago, the 10 year auction yield was 3.575%.
This week’s economic reports almost non-existent, tomorrow the only releases, weekly jobless claims expected at 192K from 183K the week before. Claims get focus from the Fed with employment being too strong for the Fed’s liking. Also, tomorrow Treasury will auction $21B of new 30 year bonds.
Fundamentals remain bearish for mortgage rates, technically the 10 testing a down trend line this morning at 3.68%, a close above that sets the potential to increase to 3.85%.
