Weird open for the MBS today.   The 6.0 is flat but the 5.5 is down over 30 bps.  The 6.5 is down 9 bps.

Data from Friday reflected an unexpected decline in wholesale prices, giving investors hope that the Fed may still consider rate cuts as early as March. This trading week is short with retail sales due out Wednesday.

The upcoming week won’t have much in the way of market-moving data however we will get some Fed-speak and housing data, with the NAHB Housing Market Index, housing starts and existing home sales.

Regional Fed surveys usually don’t mean much, but the New York Empire State Manufacturing Survey showed a brutal collapse, falling 29 points to -43.7, the weakest reading since May of 2020. New orders and shipments fell dramatically, while input prices rose slightly. As you can tell from the chart below, these diffusion indices can be volatile, however this is one data point that is pointing to a harder landing than people are expecting.

On the Citibank earnings conference call, CEO Jane Fraser noted that they are starting to see issues for lower-FICO borrowers in terms of credit losses. Consumers have about $1 trillion on their credit cards, carrying an average rate of 20.74%.

The most hotly anticipated calendar event at the start of this holiday-shortened week was a Q&A with the Fed’s Christopher Waller, hosted by Brookings.  The questions were as solid as you’d expect from David Wessel and Waller’s answers were informative–at least for market participants who may have misunderstood his role in the current Fed canon. Specifically, Waller has been dovish in terms of his impact on rates of late.  Today, his comments were hawkish–not because they were actually hawkish, but rather because they weren’t as dovish as traders expected.  Rates reacted accordingly with both MBS and Treasuries losing more than a small amount of ground.

UMBS closed down 9 bps on the 6.0 coupon.   The 5.5 lost a big 45 bps

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