UMBS opened down 16 bps and Stocks futures down 4.5

In general, there was some optimism heading into yesterday’s CPI and while it briefly seemed to have been justified (in the first few minutes after the data), traders concluded that the Fed would only be more “on hold” when we heard from them next week.  Fed Funds Futures agreed.  Traders have priced in a 65% likelihood of a rate cut taking place in June after Fed Chairman Powell indicated the first cut may not be far off as the Fed continues to monitor inflation data. PPI is due out Tomorrow and will continue to shape the narrative going forward.

Shelter was a big contributor to the CPI print yesterday, with food and shelter accounting for 60% of the increase. The good news is that the inflation index ex-shelter is pretty close to long-term averages. The bad news is that the Fed policy can’t do much to address the issue – in fact raising interest rates only increases the cost of building new homes and the driver of shelter inflation is a lack of supply.

This week’s Treasury auction cycle also helped explain some of yesterday morning’s weakness as traders positioned for the 10yr auction.  Today’s only relevant calendar item is the 30yr bond auction at 1pm.  It doesn’t have quite the pedigree of the 10yr auction, but being the last auction of the cycle, it could give way to a shift in tone after 1pm.  In general though, bonds have rejected the move toward 4% 10yr yields and are now waiting for Thursday’s econ data as well as next week’s Fed announcement.

Without any notable econ data on tap, bonds were left to their own devices on Wednesday.  This initially involved moderate overnight weakness  and mostly sideways trading during domestic hours.  From a calendar standpoint, the 30yr bond auction was the lone tradable event.  While it helped a bit at first, bonds were soon right back where they started.  In hindsight, it was a forgettable, holding pattern type of day ahead of more relevant data on Thursday morning.

UMBS ended the day down 11 bps at 100.89

Loan Depot reported earnings yesterday. Volumes fell 16% year-over-year to $5.4 billion. For the full year, volumes fell 58% although 2022 wasn’t comparable to 2023 as the company exited the wholesale channel. Gain on sale margins improved almost 100 basis points YOY to 243 bp, however this was a decrease from Q3. Loan depot guided for Q1 volume to come in between $3.5 and $5.5 billion.

The data breach in January didn’t appear to affect the company too much – it was able to maintain most of the loans in its pipeline.

Guild reported that fourth quarter originations came in at $3.5 billion compared to $4.3 billion in the third quarter. For the full year, volumes fell 22% to $15 billion.