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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 June Coupon is down -21 BPS with 60 minutes left to trade.
Taking it to the House: Weekly Mortgage Applications fell by only -1.4%. Purchases were down -1.7% and Refinances were flat at -0.7%.
Trade Balance: The April Goods and Services Trade Balance was $-74.6B which is a pretty steep move from March’s pace of $-60.6B. But it was a smidge lower than forecasts of $-75.2B
Consumer Credit Change: The April release showed an increase of $23B vs. est. of $22B. Of this, revolving credit jumped by $13.5 billion, a modest drop from last month’s $14.8 billion (the original revolving print for March of $17.6 billion which was the 2nd highest on record, was revised lower by just under $3 billion), and bringing total credit card debt to a new record high of $1.244 trillion, up 13.1% from the previous year.
Central Bank Palooza: The Bank of Canada decided to increase their key interest rate by 25%, they had been in a holding pattern for their last couple of meetings.
On Deck for Tomorrow: Initial Weekly Jobless Claims
Rate markets began quietly this morning with no news, and none expected. By mid-day though rates came under pressure when Canada unexpectedly increased interest rates. Canada, beside flooding the US with wildfire smoke, caused interest rates to increase only because it wasn’t expected. Going into the FOMC next Wednesday it doesn’t take much to nudge rates although from broader perspective rates at the long end of the curve have been stable for the last week. With Fed lurking and no counter weak data rates or any other news that keeps traders in rates it isn’t unreasonable that today the 10 year note high reached 3.80%, the top of its range since mid-March and where it traded two weeks ago.
The Fed is still expected to keep rates unchanged and next at week’s meeting. Investors and markets though looking to July for another increase. Inflation is slowing but not nearly as was expected a year ago when the Fed began increasing rates by 5.0%. It is the same worldwide, inflation is slowing but the pace has surprised central banks not falling as had been thought a year ago when tightening began. That inflation remains twice as high as the Fed and ECB want, strongly suggests if the Fed wants 2.0% it will have to crush the economy and instead of a FF rate at 5.00%-5.25% it may require a rate as high as 6.0%. Most though still touting a recession, if it occurs will be minor and short-lived. The reality is, there is no blueprint for central banks in this situation where employment continues strong, and consumers keep spending.
April consumer credit expected +$21.6B rose $23B and March credit revised to $22.8B from $26.5B. Revolving credit (credit cards) rose 13.2% in April, down slightly from a 14.6% gain in the prior month. The data doesn’t include mortgage debt. So far the increase in credit hasn’t stressed households.
Tomorrow weekly jobless claims expected at 235K from 232K the prior week. There were only two key reports this week, the ISM services sector last Monday and weekly claims. ISM services declined helping support interest rates.
The Canadian rate increase pressured MBSs and pushed the 10 year note from 3.71% at 9:30 to 3.80%.
There is not much likelihood now that interest rates will rally with FOMC next week. It would take weekly claims tomorrow to exceed 260K.
