Monday – February 13, 2023

UMBS up 5 bps on the day

Treasuries were mostly sideways in the overnight session which isn’t too surprising given last week’s sell-off and the looming CPI data tomorrow.

The week ahead will have some important data on housing and inflation, with the Consumer Price Index on Tuesday, and the Producer Price Index on Thursday. We will also get housing starts and builder sentiment. Other important data points are retail sales, small business optimism and leading economic indicators.

Loan demand is falling, while lending standards are getting tighter, according to the Fed. This is typical for an economy that is poised to enter a recession. Loan demand for residential real estate was weak, and standards tightened for HELOCs, credit cards, auto loans and other consumer debt.

The Fed also observed the same phenomenon for commercial and industrial loans, as well as commercial real estate.

The Atlanta Fed GDP Now Index sees 2.1% GDP growth in Q1, while the Street sees it coming in mildly

Reprice risk today is moderate, there isn’t any data to worry about but we could see moves ahead of tomorrow’s CPI inflation data. Remember that tomorrow’s data could push rates either way, but won’t drive us back to the lows we hit earlier this month. Tomorrow’s CPI data is at 8:30am ET, so it will affect rate sheets before you have a chance to lock, so if you’re not comfortable with the risk then you want to lock whatever loans today ahead of the data.

Mr. Cooper is buying Roosevelt Management Company in a deal that will bring them an asset management company/platform that will allow them to raise capital from institutional investors. Speaking of Mr. Cooper, they see $1.5T in MSR opportunity in 2023. They continue to be strategic in their acquisitions of MSR assets and, with a strong capital base, they can take advantage of the opportunities created by others needing to sell.


Via Shakespeare’s Julius Caesar

Tuesday – February 14, 2023

UMBS down 9 bps net on the open

10yr yields were slightly lower on the day and initially reversed higher due to the modest upward revision to last month’s core (0.4 vs 0.3 prev).

With the CPI numbers being as mixed as they were and with the sheer volume of trading that was waiting to take place in its wake, it’s no surprise to see some 2-way volatility as the morning progresses. Now it’s back into the red

m/m Core CPI = 0.4 vs 0.4 f’cast [0.4 prev]

y/y Core CPI = 5.6 vs 5.5 f’cast [5.7 prev]

The consumer price index rose 0.5% MOM in January, breaking a streak of lower monthly numbers. Excluding food and energy the CPI rose 0.4%. Inflation rose 6.4% on an annual basis. Shelter was the biggest addition to inflation, and that will fade as we get into summer where home prices peaked last year.

Federal Reserve officials said interest rates may need to move to a higher level than anticipated to ensure inflation continues to fall, after fresh data showed

prices rose at a brisk pace last month.

Richmond Fed President Thomas Barkin, speaking in a Bloomberg TV interview Tuesday, said that “if inflation persists at levels well above our target, maybe we’ll have to do more.”

Dallas Fed President Lorie Logan said: “We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond

to changes in the economic outlook or to offset any undesired easing in conditions.”

It will take one of two things for the current rising rate trend to run its course.  Either the economic data needs to shift in a compelling way or the selling needs to take rates back up to 2022’s highest rates at which point markets will conclude a compelling economic shift is imminent.  Neither option is “fun” for the mortgage/housing market.  Today’s CPI wasn’t as much of a barn burner as the jobs report 2 weeks ago, but it was high enough to prove the Fed’s persistent point regarding stubbornly elevated inflation.

Black Knight is close to selling its Empower LOS is order to gain antitrust approval to merge with Intercontinental Exchange. The antitrust regulators were almost certain to prohibit Encompass and Empower from being under the same roof. Encompass and Empower are the #1 and #2 loan origination systems in what is a pretty concentrated industry. No mention of who would be the buyer.


Wednesday – February 15, 2023

aaaargh. Another day of MBS down on the open. Today down 11 bps early.

Both of this morning’s reports are obviously much stronger than expected, but it’s Retail Sales that carries the bigger stick. That stick is currently pointing bond traders in the direction of the “sell” button.

After a flat overnight session, 10yr yields are up a quick 3.5bps at 3.788 and MBS are down nearly a quarter point.

Retail Sales = 3.0 vs -1.9 f’cast [-1.1 prev]

NY Fed Manufacturing = -5.8 vs -18.0 f’cast [-32.9 prev]

US retail sales rose in January by the most in nearly two years, signaling robust consumer demand that could bolster the Federal Reserve’s resolve to keep raising interest rates in the face of persistent inflation. When stripping autos and gas, still up 2.4%. After a negative Nov and Dec – this is especially strong.

 Mortgage rates are rising now in anticipation of future Fed action. Markets are pricing in three more Fed rate hikes and a fed rate above 5.25% heading into 2024, when just a couple of weeks ago rates were at their recent lowest and markets were pricing in one more hike in March only and a Fed rate that would pause at 4.75%.

Homebuilder confidence improved in February, according to the NAHB. “With the largest monthly increase for builder sentiment since June 2013, the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market,

Cass Freight Index measures shipments and cost of shipping goods. Shipments  component was down 3.2%. If this slowdown continues – it’s recessionary. 20 yr auction this afternoon will give a real-time gauge of what matters.

Industrial production was flat in January, according to the Federal Reserve. Manufacturing output rose 1%. Capacity Utilization fell to 78.3%.

20 yr auction was met with average demand.  Bid to Cover of 2.54 was below the 1 year avg of 2.59.  Direct and indirect bidders took 93.3% (vs 88.3% avg)

Thursday – February 16, 2023

Another tough open for bonds. Down almost a quarter early. Treasuries up 4 bps. Bonds were sideways in quiet trading overnight. The big jump in producer prices and the sub 200k print in Jobless Claims kicked off a bit of weakness at 8:30am, but it was Mester introducing the 50bp rate hike idea that got things moving more quickly 15 minutes later.

This view was later echoed by her counter part at St. Louis, James Bullard.

Jobless Claims: 194 vs 200 f’cast [195 prev]

Down 1k on the week.   Continuing claims rose 16k to 1.7m

Core Producer Prices M/M: 0.5 vs 0.3 f’cast

Headline PPI:  .7% vs .4% est

Dec Revised from -.5% to -.2%

Inflation at the wholesale level grew at the fastest rate since June of 2022, according to the Producer Price Index. This was after two months of declines in November and December. The index rose 6.0% on an annual basis. Energy costs were the big driver. This was higher than Street expectations.

Philly Fed: -24.3 vs -7.4 f’cast [-8.9 prev]

Housing Starts: 1.309m vs 1.360m f’cast [1.371m prev]


Investors bought 48,445 homes in the fourth quarter of 2022, which is the second biggest quarterly decline.

NAHB home builder survey for Feb Increased 7 point from 35 to 42. Strongest 1 month gain in 10 yrs. Present conditions +6, Future outlook +11, traffic +6.

Chris Whalen has a great editorial about how FHFA is changing the rules for servicers as a result of COVID. Essentially loans in forbearance during COVID won’t be offered the same sort of reps and warrants relief as typically granted during a natural disaster. This creates an open-ended liability stream for mortgage bankers. Essentially the government asked servicers to offer forbearance and can now slug them for it.

He also mentions that a lot of banks are sitting on big unrealized losses on their portfolios of mortgages originated in 2020 and 2021. This includes Fannie Mae and Freddie Mac, which might explain the change in policy. He stated that banks have a $350 billion deficit for available for sale securities and loans. Many of these securities and loans are now trading at 15-20 point discounts in the market and might have to be sold. Hedge funds which are flush with cash might be able to pick up a good trade if that happens.


Friday – February 17, 2023

Aaaand to finish the week off right, MBS down 16 on the open – again

Slightly weaker out of the gate in Asia with additional weakness in Europe, but some resilience heading into domestic hours

US equity futures and European stocks dropped in the face of hawkish comments from Federal Reserve and European Central Bank officials that ramped up investors’ expectations of higher interest rates. The dollar rallied and bonds fell.

Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James

Bullard said he would not rule out supporting a half-percentage-point increase at the March meeting. ECB Executive Board member Isabel Schnabel warned that markets risked underestimating inflation.

MBS are now below 100 on the 5.5.  Ceiling is a Fibonacci at 100.094 – then 100 day at 100.284.  Dual floors at 99.845 – and 99.711.   Can float, though tough to find hope of lower.  Just buying days

The March Fed Funds futures are now factoring in a 21% chance of a 50 basis point hike at the March meeting. The 10 year yield has moved up dramatically in the past 2 weeks.

The Index of Leading Economic Indicators declined again in January, according to the Conference Board. Among the leading indicators, deteriorating manufacturing new orders, consumers’ expectations of business conditions, and credit conditions more than offset strengths in labor markets and stock prices to drive the index lower in the month. The contribution of the yield spread component of the LEI also turned negative in the last two months, which is often a signal of recession to come. While the LEI continues to signal recession in the near term, indicators related to the labor market—including employment and personal income—remain robust so far.

Think you have problems? Lenders and vendors aren’t the only ones who had a bad 2022. Redfin, owner of Bay Equity Home Loans, lost $320 million last year. (This is after a $57 million gain from buying back senior notes, so some would say Redfin really lost $377 million.)

Common Sources and influences






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