Monday – September 23, 2024

UMBS opened down 5 bps.  S&P futures are up 8.25 points.
Bonds were slightly weaker overnight with some additional selling in the opening hour.  The S&P data has added modestly to the pressure, but doesn’t look to be creating any excessive sell-off.

The week ahead will contain a lot of Fed speakers, and we will get the PCE inflation numbers on Friday. We will get home prices and the final revision to Q2 GDP.

Economic growth increased in August, according to the Chicago Fed National Activity Index. Production indices drove the increase, while sales, housing, and employment indices were drags on growth. The CFNAI is a sort of meta-index of most government and private economic indices.

Fed Governor Christopher Waller said he supported a 50 basis point cut last week because inflation was falling faster than he anticipated.

The Fed cut interest rates by 50 basis points and mortgage rates went nowhere. Why? The short answer is that the yield curve simply un-inverted some. In normal economic times, long term rates are usually higher than short term rates. The yield curve inverted as the Fed started hiking rates and has remained there since. An inverted yield curve is a recessionary indicator (but not a perfect one).

Based on the weakness in the bond market this morning, it looked as if the post-Fed correction that began last week was set to continue into the new week.  And while that indeed may prove to be the case, there’s some room for doubt after the close.  Bonds rallied nicely in the late AM and early PM hours with both Treasuries and MBS making it back to unchanged levels. They’ve faded a bit after that, but not nearly back to the mid-day lows.  Comments from Fed’s Goolsbee lined up with the reversal, but the volume behind the move suggests that may not have been the primary motivation.  In any event, the milder weakness builds a case for the post-Fed correction potentially leveling off.  Tuesday will be more telling in that regard.

UMBS closed the day down 5 bps at 101.32