UMBS opened down 13 bps

The bond market was definitely hoping for some love after last month’s CPI hit so hard, but alas… no love. Underlying US inflation topped forecasts for a second month in February, reinforcing the Federal Reserve’s cautious approach to cutting interest rates.

CPI m/m = 0.4% vs 0.4% est  [0.3 prev]

CPY y/y = 3.2% vs 3.1%  [3.1% prev]

Core CPI m/m = 0.4 vs 0.3 f’cast,   [0.4 prev]

Core y/y CPI = 3.8 vs 3.7 f’cast,   [3.9 prev]

Shelter and gasoline accounted for about 60% of the increase.

As the market moves on from the initial post-CPI volume pop, sellers are emerging victorious.  We could also consider pre-auction positioning with the 10yr auction coming up at 1pm.

Either way, the gains are gone and MBS are down

Small Business Optimism fell in February, according to the NFIB. Overall sentiment remains dour as earnings and revenues decrease. There continues to be a labor shortage in construction, transportation and wholesaling, while pricing pressures continue to ease.

It looks like the spring selling season is shaping up a little better than feared, as more inventory is appearing at the lower price points, prices are stabilizing and we are seeing the highest level of price reductions since February of 2019. Inventory is up 15% on a year-over-year basis.

Asking rents increased 2% in February, according to research from Redfin. The median asking rent increased 0.9% month-over-month to $1,981.

Home Bay just published a survey that found 75 percent were happy with their decision to move. But 86 percent of Americans who moved in 2023 have regrets about moving, up from 75 percent in 2022. With many movers charging by size and weight, 24 percent of Americans wish they downsized their belongings before moving. Other common regrets include missing their old home (24 percent) and that moving was too expensive (20 percent). What’s more, nearly half (46 percent) of Americans shed tears and 42 percent fought with their loved ones during the moving process.

The top reasons for moving in 2023 were to improve their quality of life (31 percent) and upsize their home (21 percent). If money were no object, the states Americans most want to move to are California (32 percent), New York (29 percent), and Florida (24 percent). However, migration data from Allied Van Lines shows more affordable states such as Montana, Vermont, Arkansas, and Idaho have the highest percentage of inbound moves.

Heading into the 4pm hour, MBS are only down 6 ticks (.19) and 10yr yields are only up 6bps, trading just under 4.16.  That means the bond market is hanging on to all of the gains seen from the recent highs through last Tuesday–not a bad showing considering Core CPI came in a 0.4% for the 2nd month in a row (or that 10yr yields shot up to 4.3+ when that previous CPI report came out).  In addition to rounding considerations (0.4 was really only 0.358), the details also showed a welcome drop in the problematic OER from 0.6 to 0.4.  These factors helped bonds temporarily break even earlier this morning.  Subsequent weakness was at least partially attributable to the approaching 10yr Treasury auction.

UMBS ended the day down 6 bps at 101.00

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