4:00 EST – Our benchmark FNMA MBS 6.00 March Coupon is down -29 BPS with 60 minutes left to trade.
Inflation Nation: The Fed’s key measure of inflation was much hotter than expected. Headline PCE increased by 0.6% on a MOM basis vs. est. of 0.5%. YOY, it increased by 5.4% vs. est. of 4.9%. Housing and Transportation were the two biggest factors in the inflationary reading. Core (ex food and energy) PCE MOM was up 0.6% vs. est. of 0.4% and YOY it was up 4.7% vs. est. of 4.3%. It is important to note that the prior month’s data (January) was revised upward across the board and February’s data was higher at every level from January.
Income and Spending: Personal Incomes rose by 0.6% in February, the market was expecting 0.9%. January was revised upward from 0.2% to 0.3%. Personal Spending was much higher than expected, up 1.8% vs. est. of 1.3%. January was revised higher from -0.2% to -0.1%.
Consumer Sentiment: The previously released February UofM Consumer Sentiment Index was revised from 66.4 to 67.0
Taking it to the House: New Home Sales in January hit an annualized pace of 670K units vs. est. of 620K.
McNee MBS Metrics
The chart on the left shows which items impact Mortgage Backed Security trader’s decision to sell or to add to their positions. The arrows indicate if it is helping pricing or pressuring pricing. Thus, a green arrow is good for your back end pricing and red arrows are bad. Each category is given a different weight. For example, a change in central bank policy will impact pricing more than the stock market will. Also weight for certain categories will change from time to time. For example, years ago – the stock market had a very large influence on bond prices, but has almost no influence now. But that could flip back, so the weighting may change due to that.
Note: My metrics above inform you on what impact these items have had over the past four weeks and specifically on today’s trades. But they do not point the way towards future pricing. I do provide intra-day and longer term lock advice in our Morning Coffee Update and Video.
SIGMA RESEARCH, INC. THE SHIRMEYER REPORT
After all we had this week, FOMC minutes, personal; spending and income, PMI services and manufacturing, Q4 GDP, Jan existing and new home sales, weekly jobless claims, U. of Michigan consumer sentiment index, by the end of the week the 10 increased 13 bps. Inflation marked the week this morning, the first inflation read we have seen in two months that exceeded the estimates and higher than the prior month.
The reaction this morning to this morning’s PCE increased the outlook for higher interest rates and suggests the worry about a coming recession. It is a moving target; a lot of comments with little conviction behind them but also no increase in the 10 this week. The Jan PCE m/m expected +0.4% increased 0.6%, year/year estimates +4.9% increased 5.4%. Core PCE m/m +0.6% against 0.4% expected, year/year core thought to be +4.3% increased 4.7%. Jan personal income expected +1.0% up just 0.6%; personal spending in Jan was stronger, +1.8% with forecasts of 1.2%.
Next Week: Monday Jan durable goods orders, Jan pending home sales. Tuesday Case/Shiller and FHFA Dec home prices, Feb Chicago purchasing mgrs. index. Wednesday weekly MBA apps, final PMI manufacturing index, the Feb ISM manufacturing index, Jan construction spending. Thursday weekly claims, PMI final services sector index for Feb. Friday Feb ISM services sector index. Normally we would get Feb employment data, but it won’t hit until next Friday.
This week: 10 year note yield increased 13 bps, MBS prices -66 bps. The DJIA lost 1,010, NASDAQ -392, S&P -110. Gold fell $33.00 on the strong dollar; crude oil this week unchanged (+$0.16). The dollar index strong, increased 1.32 to 105.22. Bitcoin -597 this week.
On the news this morning the 10 year note increased to 3.97% +9 bps but this afternoon found a little support backing down to 3.95%, 13 bps higher than last Friday: MBS prices at 9:30 am -42 bps, at 4:00 -34 bps. That’s the MBS market, the lender market is more bearish, lenders not willing to price with any aggression as is understandable. Traders still on the hot plate over what the Fed will do, what the economic outlook will turn out to be. With each key release on inflation the Fed hikes changes pending the data compared to estimates. According to new research and today’s PCE the Fed may have to go as high as 6.5% compared to 5.25% that was expected. Gurus like Mohamed El-Erian says the financial markets are starting to doubt whether the Federal Reserve can bring inflation down to its 2% target. “We’re seeing actual and survey indicators heading the wrong way,” El-Erian said. “So, I think the market and more importantly, people in the street, are starting to doubt whether the Fed can deliver the 2%.”… “Had the Fed not mischaracterized inflation as transitory, had the Fed not waited till March of last year for the first rate hike, had the Fed not downshifted so quickly to 25, the pain would be less,” El-Erian said. “Unfortunately, if they were gonna get to 2%, they’re gonna inflict tremendous pain on this economy.”
10 year note at 4:00 pm
WE FLOATED A FEW LOANS INTO THE PCE, WILL LOCK AND TAKE THE HIT TO FIGHT ANOTHER DAY.
PRICES @ 4:00 PM
10 year note: 3.95% +7 bp
5 year note: 4.21% +10 bp
2 Year note: 4.80% +11 bp
30 year bond: 3.94% +5 bp
Libor Rates: 1 month 4.617%; 3 month 4.958%; 6 month 5.277%; 1 year 5.642% (2/23/23)
30 year FNMA 6.0: 101.02 -28 bp (+14 bp from 9:30)
30 year FNMA 5.5: 99.56 -39 bp (+3 bp from 9:30)
30 year GNMA 5.5: 100.06 -28 bp (+6 bp from 9:30)
Dollar/Yuan: $6.9562 +$0.0481
Dollar/Yen: 136.41 +1.73 yen
Dollar/Euro: $1.0549 -$0.0047
Dollar Index: 105.22 +0.63
Gold: $1818.60 -$8.20
Bitcoin: 23,179 -718
Crude Oil: $76.51 +1.12
DJIA: 32,816.92 -336.99
NASDAQ: 11,394.94 -195.46
S&P 500: 3970.04 -42.28
SOFR Data 02/24: 30-DAY AVERAGE(%): 4.49249, 90-DAY AVERAGE(%): 4.28110, 180-DAY AVERAGE(%): 3.66912, INDEX: 1.06695464
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