MBS are up 13 bps this morning.  Which is a nice change.  S&P Futures are up 3.5 points.

Though they are losing ground after another better-than-expected Jobless Claims report.  Which is just feeding into the “higher for longer” reprice

Jobless Claims = 207k vs 210k f’cast  [205k prev]

Continuing Claims fell 1,000 to 1.664m

Challenger Job Report = 47,457 job cuts – down 37% from August – up 58% vs last year.  Lead by tech and retail.

More and more mortgage applications are being rejected for insufficient income, as mortgage payments rise faster than incomes. The CFPB reported that the average monthly mortgage payment at the end of 2022 was $2,045 compared to $1,400 a year before. This is a 46% increase in the payment, and incomes are rising in the mid-single digits.

Tomorrow is the BLS jobs report.  Market is expecting a 170,000 reading.  Was 187,000 previous.   BLS interestingly doesn’t count people on strike.   Also multiple job holders are on the rise.  Over the last year there had been 3m jobs created but 500k of those are multiple job holders.  So kinda double counting.

While bonds definitely had a logical reaction to this morning’s stronger Jobless Claims data at first, a less logical rally followed shortly thereafter.  By the time we zoom out and consider the week as a whole, we see a gradual downtrend in yields leading back from Tuesday’s highs with brief departures to react to economic reports.  In other words, there’s a big picture, strategic circling of the wagons ahead of Friday’s jobs report.  The best thing you could say about it is that it indicates bonds can be receptive to stronger or weaker data.

MBS closed up 13 bps.  Which is 20 bps higher than the lowest point on the day.  Closing at 97.95

Smarter folks than me have pointed out that the government is 43% larger than it was four years ago, and there has been a huge increase in government subsidies, credits, and handouts that are driving the economy. The coming supply of Treasuries required to fund this government (that’s right, it’s not your taxes that fund it, it’s debt) will demand higher yields until something breaks in the economy. Also contributing to a drop in demand is the fact that four of the largest purchasers of Treasury debt have pulled back. The Fed bought about a quarter of all Treasury debt in the past decade, but has been shrinking its balance sheet and warns it will do so for at least another year. China is playing political games and not buying in the bulk it once was but at least is not likely to sell at a loss. Japan is buying closer to home, and lastly banks are no longer keen to load up on “risk free” long dated Treasury bonds that proved to be more risky than expected after the banking debacle in March.

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