UMBS opened up 3 bps – again.   Am I in groundhogs day or something?

Bonds were remarkably calm overnight considering yesterday’s movement and the fact that month-end trading played a role.  The calm continues into domestic hours with modest gains after the slightly higher jobless claims number.

Jobless Claims = 224k vs 212k f’cast   [215k prev]

Continuing claims = 1.898m vs 1.840m  [1.833 prev]

The US labor market has defied economists’ forecasts over the last year despite elevated interest rates, but there are signs of cooling. Fewer people are quitting their jobs than at the peak of the pandemic recovery and recent high-profile job-cuts announcements from companies including United States Parcel Service Inc. may be early signs that unemployment will pick up in coming months.

Weekly claims tend to be volatile. The four-week moving average, which helps smooth short-term fluctuations, increased to 207,750, marking the biggest increase since November.

If the Fed cuts rates, it risks a re-ignition of inflation as mortgage rates fall and home prices rise. We do have a record number of apartments under construction, and that should put downward pressure on the rental component of shelter inflation.

New York Community Bank (the parent of Flagstar) fell 38% yesterday on a loss and dividend cut. The company also acquired Signature Bank last year during the regional banking crisis. It boosted its provision for loan losses, and the Street is taking this quarter as sort of a “kitchen sink” earnings release – which is when a company that is reporting bad news decides to release everything negative all at once. This often supports better earnings going forward. That said, the dividend cut was bad news.

In other economic news, nonfarm productivity rose 3.2% in the fourth quarter and unit labor costs rose 0.5%. This is good news for inflation. Initial Jobless claims rose to 224k, indicating that the labor market is cooling.

Announced job cuts surged in January, according to outplacement firm Challenger, Gray and Christmas. “Waves of layoff announcements hit US-based companies in January after a quiet fourth quarter. As we step into 2024, the landscape is shaped by stabilizing prices and the anticipation of falling interest rates. It is also an election year, and companies begin to plan for potential policy changes that may impact their industries. However, these layoffs are also driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.

At one point this morning, 10yr yields were close to breaking into new 6-month lows.  By the 3pm CME close, we had to settle for the lowest yields since December 28th.  The gains arrived rapidly just this week with concerns over the regional banking sector causing a semblance of the drama seen in March 2023. This has arguably been a bigger consideration for rates than the week’s economic data.  If we include Treasury supply updates, we could argue that data has played a small supporting role at best.  As such, Friday’s jobs report is now the first, last, and only huge potential market mover of the week.

UMBS ended the day down 3 bps at 101.42

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