UMBS were down 14 bps on the open.  Seems to be the standard answer lately.
US equity futures pointed to a slightly weaker start for Wall Street, following two weeks of robust gains, as investors waited for inflation data that could show if the Federal Reserve is done hiking interest rates.

Market attention is firmly focused on Tuesday’s US consumer price data, which are expected to show inflation easing to a year-on-year rate of 3.3% in October, down from 3.7% in the prior month. Ten-year Treasury yields slipped two basis points to 4.63%, leaving them down about 30 basis points this month.

While several Fed officials have rejected the likelihood of swift rate cuts, money markets and economists are sticking with policy-easing bets.  UBS is out with a call saying the Fed will cut the Fed Funds rate by 275 basis points next year. Morgan Stanley sees the first rate cut in June, while Goldman sees Q4.

Moody’s downgraded their outlook for the US on Friday from “stable” to “negative,” citing the mounting debt and the rising cost of servicing that debt. “In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”

The US will have to pass another stopgap measure once we hit the debt ceiling later this week. Given that bond prices are roughly where they were prior to the announcement, the markets appear to be taking this in stride.

Monday had very little to offer in terms of calendar events or meaningful headlines to inspire bond market momentum for better or worse.  The result is unsurprising if you ask Treasuries: 10yr yields are drifting very close to unchanged on the day after early selling and a late morning bounce.  If there’s a development that’s worth mentioning, it would be the MBS outperformance.  Case in point, 6.0 UMBS are ending the day in line with Friday’s 11am levels while 10yr yields are more than 4bps higher versus the same baseline.  As interesting as that may be, all bets are off after 8:30am tomorrow (CPI).

UMBS closed the day up 22 bps at 100.41.  10 yr is back under 4.70%

The problems in commercial real estate are coming to a head as the problems in office expand to retail and multi-family.

The Wall Street Journal had a story this morning (paywall) about the problems in mezzanine debt, which is like a second mortgage for commercial real estate properties. Foreclosures hit a record this year in the mezzanine space, which is often a canary in the coal mine. It looks like a lot of the creditors are not banks, but hedge funds and asset managers. But with asset prices in free fall, the banks will start to feel the heat.

The problems in commercial real estate might be one reason why the Fed will need to ease sooner rather than later.