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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
Our benchmark FNMA MBS 6.00 August Coupon is currently up +42 BPS.
Inflation Nation: The June headline Producer Price Index was weaker (better) than expected, rising by just 0.1% vs. est. of 0.2%, plus the prior month was revised lower to -0.4%. YOY, it was up 0.1% vs. est. of 0.4%. Core PPI (ex food and energy) was also up 0.1% vs. est. of 0.2%. YOY it was up 2.4% vs. est. of 2.6%.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lower (better) than expected, 237K vs. est. of 250K. The more closely watched 4 week moving average dropped to 246K. Continuing Claims increased from 1.718M to 1.729M
The Talking Fed: One of our Favorites is stepping down. St. Louis Fed President James Bullard is leaving his post effective August 15th to join the faculty at Purdue University.
Treasury Dump: Today we had a very important 30 year Treasury bond auction.$18B went off at a high yield of 3.910%. The bid-cover-ratio was 2.43 which was solid but below last month’s level of 2.52
On Deck for Tomorrow: Import and Export Prices, UofM Consumer Sentiment Index
Yesterday June CPI lower than the low forecasts, today June PPI also soft. Current belief now, the Fed will increase the FF rate in two weeks but that should be the end of the increases. The 10 year note yield fell from 4.09% to 3.80% today. MBS prices increased 88 bps since Tuesday. Prior to the soft inflation data, the consensus was the Fed would do two more increases, one in two weeks the next at the Sept FOMC meeting.
Betting now, inflation will continue to slow. The more sensitive to inflation, the 2 year note declined 15 bps yesterday, today down another 8 bps, quarter of a point in two days and the lowest since the beginning of June. The easing inflation in the US drove foreign central banks to change their tune. Two weeks ago, at a major central banks meeting, the ECB was intent on more increases, following the US now the European Central Bank, and in the UK, now see the Bank of England taking the key rate to as high as 6.25%, compared with a high of 6.5% priced earlier this week. Inflation in Europe much higher than in the US but now the ECB talking that its rates increase this month is not a “holy promise”.
Treasury auctioned $18B of 30s this afternoon to weak demand. In the WI market this morning the auction yield was trading at 3.89% but by 1 pm at the auction the rates climbed to 3.91%, the cover slightly stronger but generally at its 12-auction average. Foreign buyers, indirects, usually take down most of the auctions, indirects took 69.0% compared to the average 70.1%. It was the highest 30-year auction yield since November.
The Fed’s main hawk, James Bullard, St. Louis Fed, is quitting and will become the dean of Purdue’s business school. He won’t participate in the FOMC meeting although will stay on until August, he has been at the Fed for 33 years.
The University of Michigan mid-month consumer sentiment index expected at 65.5 from 64.4 in June.
More inflation measurements tomorrow with June import and export prices; imports expected -0.3% from -0.6% in May, export prices -5.9% unchanged from May.
Tomorrow is the start of Q2 earnings season with major banks reporting.
Interest rates have dropped significantly since Tuesday, may see a little more but any movement as strong as we have now isn’t likely to continue without some consolidation.
