UMBS 6.5 are down 41 bps on the morning.  Giving back about 1/2 of yesterday’s gain in like an hour.  Stocks were doing well though.

Core m/m PPI = 0.0  vs 0.3 f’cast   [0.2 prev]

Headline PPI m/m = -0.5 vs 0.1 f’cast  [0.4 prev]

Retail Sales  =  -0.1 vs -0.3 f’cast.  prev month revised up to 0.9 from 0.7.  Still up 2.5% y/y.

Personal Consumption = -0.6 m/m, rose 1.4% y/y

Speaking of retail sales, Target reported third quarter comparable store sales fell 4.9% compared to last year. Overall sales fell 4.2%. Home Depot reported US comparable store sales were down 3.5% and overall sales fell 3% compared to a year ago. We will get WalMart on Thursday, but consumer spending appears to be weak

Of these two reports, Retail sales is far more relevant in terms of bond market movement potential.

House lawmakers, on a vote of 336 to 95, passed a two-part stopgap spending bill yesterday that would extend government funding into 2024. The passage comes ahead of a Friday deadline when current funding for federal agencies is due to expire. The measure now heads to the Senate, which is expected to send it to President Joe Biden’s desk by the end of the week.

The latest Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report also doesn’t make for easy reading. This report revealed that during the third quarter independent mortgage bankers saw a pre-tax net loss of $1,015 per loan, which is almost twice the $534 loss seen in the second quarter and worse than the $624 loss seen in the same quarter of 2022.

After Tuesday’s big CPI reaction, Wednesday brought the week’s only other top tier economic report.  Retail Sales may have been negative, but by coming in 0.2% higher than expected, the report paved the way for weakness in the bond market.  Actually, it’s probably more accurate to say that yesterday’s big rally paved the way for weakness in the bond market and today’s Retail Sales data confirmed that sellers need not fear a big, immediate extension of the rally.  Consider that 10yr yields rallied almost 50bps in just 2 weeks.  It makes sense to a moment to cool off.  Unfortunately, due to holiday timing, we may be in for a weird two weeks of “cooling off” with random volatility inside a moderate range–one that is ultimately broken by the first full week of data in December.

UMBS closed the day down 20 bps at 100.91.  Which is actually 23 bps better than the worst part of the day.

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