UMBS opened up 11 bps in the AM.

Stocks are lower this morning after the Bank of Japan officially ended its twelve year era of negative interest rates.

Housing starts rose 10.7% month-over-month and 5.9% year-over-year to a seasonally adjusted annual rate of 1.521 million units. We continue to see a shift from multi-family to single family. Multi-fam starts were down 36% year-over-year to 377k, while single family starts rose 35% to 1.13 million.

Building permits were up 2.4% year-over-year to a seasonally adjusted annual rate of 1.52 million. We saw a similar shift to single family houses with a 30% rise in single fam permits and a 33% decline in multi-family.

The Fed begins their March FOMC meeting today, and the Fed Funds futures see almost no chance of a rate cut. The June futures are still leaning towards a 25 basis point cut with a 40% chance that the Fed keeps rates the same.

WSJ Journalist Nick Timiraos, who has good contacts at the Fed, thinks the central bank is becoming more worried about a recession. While January and February inflation reports were disappointing, and the headline employment numbers are good, the world looks a lot different now than it did in July 0f 2023, the last time it hiked rates.

Historically, the Fed has begun cutting rates about 8 months after that last rate hike. It left rates elevated for longer in 2007 in order to prick the real estate bubble, but it looks like this period will go down as the second-longest tightening cycle given that a cut is unlikely this week.

Any trading day without a big ticket economic report or Fed announcement faces an uphill battle on the road to relevance. Today was no exception with only Housing Starts on the data calendar and a 20yr bond auction rounding out the scheduled events.  The auction was relatively strong and helped facilitate the day’s modest gains.  That said, we were already green before the auction and the market seemed to simply be avoiding a break of the 4.32% ceiling.  It’s held up quite well now and we can assume Wednesday’s Fed events will either precipitate a clear breakout or bounce.

UMBS ended the day up 25 bps at 100.56