UMBS were down 6 bps in early trading.

Stock futures rose and bonds fell before a record $42 billion sale of 10-year Treasuries, with investors also awaiting a handful of Federal Reserve speakers for clues on the interest-rate path.

Also on Wall Street’s radar will be a raft of central bank speakers including Adriana Kugler, Susan Collins, Thomas Barkin and Michelle Bowman. Fed Bank of Philadelphia President Patrick Harker said late Tuesday that a soft landing is in sight, pointing to falling inflation and a still-strong labor market. He didn’t give his view on when the Fed should begin to cut rates in his prepared text.

New York Community Bank (parent of Flagstar) sold off more yesterday. Moody’s has cut the bank’s debt to junk and the stock is down by 66% over the past 5 days. The other regional banks are starting get sold off as well, as problems in office are expanding to multi-family. The pain at NYCB seems to be company-specific with the departure of the Chief Risk Officer and its exposure to NYC multi-fam renovation loans.

We are starting to see delinquencies pick up on the consumer side. In the 4th quarter of 2023, credit card delinquencies approached 2020 levels and you would have to go back to the Great Recession to see similar DQ numbers.

After several days of heavy volatility, the bond market is drifting into a sideways daze, lulled to sleep by the repetitive tones from multiple Fed speakers.  One after another, they’re saying the same version of the same thesis (good progress on inflation, but need more, might cut in 2024, but not yet, surprisingly strong econ gives us time to decide, etc). Bonds have clearly heard it all before, which is why they didn’t care about Powell saying this stuff last week.  NYCB headlines were worth temporary volatility, but not lasting changes.  The  largest ever 10yr auction passed without a trace.

UMBS ended the day down 17 bps at 100.88

We have a problem in real estate. In every sector of real estate, not just office, because of the 500 basis point increase in rates that was vertical. The office market has an existential crisis right now… it’s a $3 trillion dollar asset class that’s probably worth $1.8 trillion [now]. There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is… There are buildings in New York that were bought for $200 million… the loan was $100 million… and we [personally] thought it was worth $30 million. There’s a building for sale right now in San Francisco. It was bought for $850 per sq ft. The loan was $450 per sq ft. They’ll [probably] sell it for $250 per sq ft… that’s $0.25 on the dollar. That would mean we lost three-quarters of the total asset class…

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