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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 January Coupon is up +13 BPS with 60 minutes left to trade.
Bob the Builder: November Construction Spending was much better than expected, up 0.2% vs. est. of down -0.4%
Rosie the Riveter: The revised Markit Manufacturing PMI matched the previous release of 46.2
On Deck for Tomorrow: ISM Manufacturing, JOLTS, FOMC Minutes.
Last Friday’s decline on the 10 year note below 3.40% that initially dropped the 10 to 3.30%; a wall that couldn’t break down since last Dec, the fact it did and that the rate plunged was running stops that had been built for months. This morning back above 3.40% to 3.53%. The banking fears slowed over the weekend. There are still some ideas the Fed will continue to fight inflation, possibly fighting the last battle. A recession is coming, five to six months as we see it now. The Fed is likely to pass on a rate increase at the May 3rd meeting if the banking system is considered in need of reform. The Fed finds itself in a huge quandary now, its charge is for steady employment and economic stability, it’s a goal that looks difficult to achieve these days. High rates to end inflation will slow growth, cutting rates would shortcut recession, that is the conundrum facing the central banks. The financial system changes ahead will keep the bond market volatility high for April as events, news, and unexpected surprises continue.
The FOMC last week with 25 bp increase was widely expected, the outlook for more has grown in focus, will the Fed increase more or hunker down? Jeff Gundlach commented this afternoon, the Fed can’t fight inflation without creating financial volatility. Where to look for clues is at the very short end of the curve, the 2 year note last Thursday and Friday fell a total of 27 bps, today the 2 increased 23 bps. The 3 month T-Bill at 4.71% is the highest rate on the curve. Should the Fed have increased rate more rapidly than it did? Some believe that others believe it was the rapid rate of increases that contributed to bank problems. Pontificating on the future is folly now, too many questions with very little consensus will keep volatility in financial markets at excessive levels. One way to smooth out these wild interday swings and maintain a wider focus is to pay attention to weekly changes; we post them every Friday.
Treasury sold $42B of 2s this afternoon, the auction was sloppy and demand less than the average. In WI trading at 2.927%, at the auction 3.954%, the bid/cover 2.44 compared to 2.62 average. Tomorrow a 5 year note auction ($43B)
March consumer confidence index tomorrow at 10 am (101.0 from 102.9). Jan Case/Shiller home price index (year/year 3.7% from +4.6% in Dec).
Nearby technicals are negative, the longer view though may be a buy on the 10 year note, more on safety than driven by inflation. Currently high levels of uncertain remain, big day-to-day swings can lead to being whip-sawed, best to keep away from risk as much as possible.
