UMBS 6’s are up 25 bps on the morning so far. S&P Futures up 14.75

It’s been a fairly calm and decent trading morning, between the overnight and early domestic hours. Treasuries rallied at the start of European trading, gave some of the gains back and are now rallying to the best levels of the day. The 10 year briefly touched 4.5% in the overnight session, which is the highest level since 2007.

A combination of rising oil prices, economic resilience in the US and massive government supply is pushing yields higher. The Fed Funds futures indicate a 40% chance of an additional rate hike in 2023, aligning with Jerome Powell’s cautious approach on rate adjustments. Following the recent Fed meeting, the December 2024 Fed Funds futures increased their forecast by about 25 basis points.

The average US credit card interest rate is over 22%, with 37% capping at 29.99%, presenting a debt trap risk and making debt consolidation refinance an option despite current mortgage rates.

The US economy witnessed output stagnation at Q3’s end, as per the S&P Flash PMI, marking the worst performance since February due to falling demand and rising energy prices. While layoffs haven’t occurred, the dwindling demand could initiate them soon.

It seems like September only just arrived, but our sights are already set on October as the scene of the next major battle in the bond market.  Today’s trading session offered nothing of value, although it was “nice” to see a token correction in bonds after hitting multi-year highs yesterday.  The coming week will be hard-pressed to reshape the narrative given the absence of big ticket data, but the following week has it in spades.

Token correction after Thursday’s familiar pattern of overseas markets following through on Wednesday’s post-Fed implications.  This doesn’t speak to any bigger-picture momentum and is more of an afterthought for this week’s losses.  Big decisions are slightly more likely to remain on hold until the first week in October, thus muting risk/reward between now and then. In accounting for the risk of less likely scenarios, it still makes more sense to defend against un upward drift in rates than to plan for an unexpectedly large rally.

MBS closed up 26 bps.  Putting us in a wide range with the 25 day avg as the ceiling.   Could be choppy.

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