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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
4:30 EST – Our benchmark FNMA MBS 6.00 June Coupon is up +23 BPS with 30 minutes left to trade.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were higher than expected, 264K vs. est. of 245K. The more closely watched 4 week moving average increased to 245,250. Continuing Claims remained above the important 1.8M mark with 1.813M.
Inflation Nation: The headline April Producer Price Index MOM was 0.2% vs. est. of 0.3%, the prior month was revised upward a tenth so its a wash. YOY, it was up 2.3% vs. est. of 2.4%. Core (ex food and energy) was up 0.2% vs. est. of 0.2%. YOY, it was up 3.2% vs. est. of 3.3%.
Treasury Dump: We had an important 30 year BOND auction today at 1:00. $21B went off at a high yield of 3.741% and a bid-to-cover ratio of 2.43 and saw very strong foreign demand
Central Bank Palooza: The Bank of England increased their key interest rate by 25BPS to 4.50% and had a 7-2 vote. They signaled more tightening ahead and forecast more inflation.
On Deck for Tomorrow: Import and Export Prices, UofM Consumer Sentiment.
In the eyes of the Fed two good data points today; weekly jobless claims increased more than forecasts, +22K from the week before and like yesterday’s April CPI today’s PPI inflation less than forecasts. Overall year/year PPI expected +2.5% reported at 2.3% and the core PPI y/year expected 3.3% was 3.2%. What just a one tenth decline in CPI and PPI this morning can do, the 10 year Tuesday 3.52%, this morning 3.35%. Recently we used 3.40% as a key technical resistance for the 10 but there were three brief moments when it fell to 3.36% prior to this morning but immediately came back above 3.40%, much simpler to use a round number. The 10 year hasn’t held under 3.40%, returning to comfort rapidly. Here we are again. This time may be different, after the two inflation releases though the 10 this afternoon increased from its low at 3.36% back to 3.40%.
The action this morning after PPI rallied the 10 year note for about an hour then found resistance at its close last Thursday at 3.36%. While the data the last two days has eased fears of another rate increase next month, it may be time to cool down and really assess the details about what is now expected. Holding the 10 under 3.40% for even a few days has been a difficult task.
The Fed is now universally expected to pause its every six-week interest rate hikes. Still not joining in on the view that by the last quarter the Fed will be lowering rates. Tomorrow another look at inflation, although not as direct as CPI and PPI import and export prices; imports expected to be +0.3%, exports +0.2%. Also, tomorrow the mid-month May U. of Michigan consumer sentiment index expected at 63.0 from 63.5 in March.
Treasury sold $21B of new 30s this afternoon, a little better bidding than yesterday’s 10 year auction. In WI trading this morning the auction traded at 3.756%, at the auction the rate was 3.741%.
We have benefited by floating the last few sessions, now we will lock in some of those gains. Still want to float but its likely the 10 may increase a little tomorrow. Holding locks is the way to go but we will bank some profits that have been difficult to achieve recently. Improvement in rates tomorrow depends on the stock indexes, more weakness will push more into safety.
