UMBS opened up 5 bps to start the week.  S&P Futured up 5.5 points

FHFA Home Prices  = 0.1 vs 0.5 f’cast,    [1.2 prev]

Case Shiller Home Prices = 1.6 vs 0.9 prev

Consumer Confidence  = 102.0 vs 95.9 f’cast,    [97.0 prev]

The upcoming week will have some important data, with home prices, the second revision to Q1 GDP and personal incomes / outlays on Friday. The personal incomes / outlays report contains the PCE Price Index, which is the Fed’s favored measure of inflation. The consensus estimate for headline PCE is 0.3% MOM and 2.7% YOY, while the estimate for the core rate is 0.2% / 2.7%.

The Fed Funds futures see no chance for a rate cut at the upcoming June Fed meeting, and even have a small chance of a hike. The December futures still see one rate cut this year as the most likely outcome.

The Fed released its study of the economic well-being of Americans. In 2023, the economic well-being of most Americans slipped slightly from 2022, and is well-below 2021, where the government was shooting a bazooka of money at everyone. The one exception was parents of children under 18, where well-being fell 5%. 63% of all respondents said they could cover an unexpected $400 expense, which was down from 2021.

The government’s stimulus in 2021 created excess savings, and it looks like that savings has been largely spent. This might explain some of the tepid results we are seeing for consumer spending, and the vexing (for Democrats) vibe-cession where the official numbers are good, but the mood of the consumer is not.

5yr Treasury Auction = 4.553 vs 4.540 expectations
Bid to Cover =         2.30x vs 2.40x avg
These aren’t the worst auction results we’ve seen, but they’re on the wrong side of neutral if we were hoping to see bonds push back toward stronger levels.

Bonds began the day modestly stronger, and that was their first mistake.  Starting around 10am, the gains began evaporating following comments from Fed’s Kashkari (who needs to see “many” more months of good inflation before considering a cut) and a big pop in consumer confidence data.  In the next 3 hours, both the 2yr and 5yr Treasury auction would add to the pressure.  MBS were only down a quarter point on the day, which is an unremarkable move for the first day back after a 3 day weekend, but in contrast to the low volatility gains in the first 2 hours of the day, it feels subjectively abrupt.  Mortgage lenders concur, based on the number of reprices (and 2nd reprices).

UMBS closed the day down 36 bps at 99.81.

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