4:00 EST – Our benchmark FNMA MBS 6.00 March Coupon is up +23 BPS with 60 minutes left to trade.
Jobs, Jobs, Jobs: It was Big Jobs Friday! You can read the official BLS release here. Here is the Tale of the Tape:
February Seasonally adjusted Non Farm Payrolls (NFP) were higher than expected, 311K vs. est. of 205K.
January NFP were revised lower from 517K down to 504K.
December NFP were revised lower from 260K down to 239K.
The makes the rolling three month average of the seasonally adjusted NFP 351K which is very high.
The national average hourly earnings rate rose by 8 cents to $33.09.
The Average Hourly MOM change was 0.2% vs. estimates of 0.3%
The Average Hourly YOY change was 4.6% vs. estimates of 4.7%
The headline Unemployment Rate rose to 3.6% vs. est. of 3.4%
The U6 Underemployment Rate rose to 6.8% vs. est. of 6.5%
The Labor Force Participation Rate rose to 62.5% vs. est. of 62.3%
Market Mover: The primary catalyst in the rush to long bonds is the collapse of SVB Bank which the FDIC official placed into receivership today.
Central Bank Palooza: The Bank of Japan kept their key interest rate at -0.1%
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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.
Yesterday afternoon with very little reported news Silicon Valley Bank was sliding under, today SVB is no more, taken over this morning by FDIC. The reaction yesterday sent the 10 down 7 bps and MBS prices up 34 bps, markets until then were focused only on today’s Feb employment report. Banks, particularly regional and small banks saw selling but at the end of the day but wasn’t the panic we saw today. Today a run to safety in treasuries, the 2 year note yield, 4.60% the highest since last November. Was SVB an isolated incident? It was heavily tilted to lending to tech companies. It wasn’t a new bank, founded in 1983. Is it systemic, no one standing around debating, most all small and regional banks far removed from the specific issues at SVB that plagued it saw their stocks decline today. What appears to be the case as of now, startup tech companies got spooked and set off a run. Most current bank experts think with FDIC and California regulators moving quickly depositors, even those with more than $250K will get their money bank, conjecture this afternoon the bank will have a new owner with a few days.
SVB is the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank. The snowball began to roll down yesterday and picked momentum this morning, small banks took the brunt, but bank selling was the trade of the day. The worries likely to last next week but less so, bank experts saying the overall banking system is healthy. The ones to be concerned about are small banks like SVB ($209B assets) that focused their business lending to one particular sector: SVB the lender of choice for tech start-ups. Expect a lot of talk about whether the Fed has moved to quickly forcing businesses under, bury that thought, the Fed isn’t going to ease off, maybe just do 25 bps in two weeks and 50 that was the consensus yesterday morning.
This a narrow window that won’t be open long for homebuyers and re-financiers, mortgage rates 25 bps lower today than yesterday.
Meanwhile the Feb employment report was stronger than forecasts, somewhat confusing, the unemployment rate increased 3.6% from 3.4% in January while job growth once again was better than what was forecast. year/year average hourly earnings expected 4.7% were 4.6%, and the labor participation rate increased to it best level in months to 62.5% from 62.4% in Jan. There are some thoughts that weekly jobless claims were higher than expected yesterday, claims still very low.
Next week inflation data, CPI, PPI, retail sales, March NAHB housing market index, Feb housing starts and permits.
It is going to take a few sessions to settle, the bank issues are not likely a system of bank failures, but traders and investors are not going to ignore it early next week. Next week we get inflation data, CPI, PPI. There will be some Fed officials out and dealing with what the Fed’s reaction to two bank issues. We are back to where we were two weeks ago, will the Fed do 50 or 25 at the March meeting, backing down from 50 to calm markets that will lean on the Fed as a reason two banks failed. The stock market under pressure this week and the bank situation present a hurdle for the Fed now, Tuesday Powell made it clear the Fed would increase by 50 bps, now the current news could slow increases. Next week will be volatile.
This Week: The 10 year note rate declined 28 bps, most of it today. FNMA 5.5 30 year coupon +29 bps, 6.0 coupon +19 bps. The DJIA -1,481, NASDAQ -550, S&P -84. Gold increased $10.00 this week while crude oil declined $3.41. Bitcoin declined 2,339. The dollar index was unchanged on the week.
PRICES @ 4:00 PM
10 year note: 3.69% -22 bp
5 year note: 3.94% -26 bp
2 year note: 4.58% -29 bp
30 year bond: 3.69% -17 bp
Libor Rates: 4.806%; 3 mo. 5.154%; 6 mo. 5.500%; 1 year 5.863% (3/9/23)
30 year FNMA 6.0: 101.19 +23 bp (-4 bp from 9:30 am)
30 year FNMA 5.5: 99.95 +47 bp (-5 bp from 9:30 am)
30 year GNMA 5.5: 100.36 +8 bp (-14 bp from 9:30 am)
Dollar/Yuan: $6.9062 -$0.0585
Dollar/Yen: 134.82 -1.32 yen
Dollar/Euro: $1.0639 +$0.0055
Dollar Index: 104.59 -0.72
Gold: $1871.90 +$37.30
Bitcoin: 19,975 -269
Crude Oil: $76.39 +$0.67
DJIA: 31,909.64 -345.22
NASDAQ: 11,138.89 -199.47
S&P 500: 3861.59 -56.73
SOFR Data 03/10: 30-DAY AVERAGE(%): 4.55806, 90-DAY AVERAGE(%): 4.39800, 180-DAY AVERAGE(%): 3.84852, INDEX: 1.06884400
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