Monday – February 27, 2023

MBS up 13 bps early on the day.

Durable goods orders fell 4.5% in January, according to the Census Bureau. Excluding transportation, durable goods orders rose 0.7%. Core Capital Goods orders (a proxy for corporate capital expenditures) rose 0.8%.

Inflation took the conch last week and set the tone for fixed income markets as the Federal Reserve’s favored inflation index — the PCE — came in looking ugly on both an annual and monthly basis. This followed the CPI release that was also not anything for the central bank to brag about and bottom line is hopes for a monetary policy pivot anytime soon are fading quickly. The US Treasury 10-yer yield is within spitting distance of 4%, the Optimal Blue 30-year lending rate is at 6.63% and has its eye on 7%, and volatility remains elevated (it has closed higher for three weeks in a row now and is highest since early January.)

Pending Home Sales rose 8.1% MOM, but are still down 24% compared to a year ago. That said, NAR doesn’t really see much of a pickup in home sales until 2024.

It’s tough to trust any gains these days. Last week bonds started to level off, as did rates, after seeing both get worse for most of February. We are starting to see signs that rates could be capping out for the moment, but not sure yet if we can trust them. Risks still support locking for protection, and the outlook is still that rates will remain at these levels or worse and not likely to see much improvement.

TransUnion’s 2023 Consumer Credit Forecast projects delinquency rates for credit card and personal loans to rise to levels not seen since 2010. At the same time, demand for most lending products will remain high relative to pre-pandemic levels with the number of consumers securing auto and home equity loans increasing on an annual basis.

Despite a challenging macroeconomic environment, TransUnion’s new Consumer Pulse study found that more than half (52 percent) of Americans are optimistic about their financial future during the next 12 months. The forecast found that there is room for optimism with auto loan and home equity originations expected to rise next year. While credit card originations are expected to drop from 87.5 million in 2022 to 80.9 million in 2023, the number of new cards opened will remain much higher than at any time in the last decade.


Tuesday – February 28, 2023

MBS down 20 bps overnight.

US equity futures climbed as corporate earnings surprised on the upside and returning

appetite for riskier growth stocks fueled a rally in Tesla Inc. Bonds sank in the wake of reports that showed accelerating inflation in France and Spain.

Bonds fell, pushing key yields in Germany to a 15-year high, as evidence mounted that a year’s worth of central-bank rate hikes have yet to rein in inflation. Treasury yields advanced, with the 10-year benchmark climbing three basis points but still below a key 4% threshold.


Consumer confidence declined in February, according to the Conference Board.

Home prices fell 0.1% in December, according to the FHFA House Price Index. For the year, home prices rose 8.4%. You can see a pretty wide skew in the regions. The top performing regions during the pandemic (West Coast and Mountain states) are bringing up the rear, while Florida and the Southeast are the leaders.

The Case-Shiller Home Price Index showed a bigger slowdown in December, with the index falling 0.8%. Prices fell in all 20 cities in December, with a median decline of -1.1%. Moreover, for all 20 cities, year-over-year gains in December (median 4.4%) were lower than those of November (median 6.4%). We noted last month that home prices in San Francisco had fallen on a year-over-year basis. San Francisco’s decline worsened in December (-4.2% year-over-year); its west coast neighbors Seattle (-1.8%) and Portland (+1.1%) once again form the bottom of the league table.

Apartment list reported that rents rose .3% in Feb – and low up 3.0% YoY. Home and rental prices have been significantly decelerating and have shown declines in some markets. Though we need this to help inflation problems

The Supreme Court on Monday agreed to hear a challenge that threatens to hobble the CFPB. At issue is the way Congress set up the Consumer Financial Protection Bureau: Instead of relying on annual spending legislation like other agencies, the CFPB is funded by the Federal Reserve, an arrangement intended to ensure its independence.

A while back, Ed Groshans with Compass Point Research & Trading, LLC, addressed the potential outcomes. “SCOTUS can hear the case and rule that the CFPB’s funding is constitutional. This outcome would have no bearing on the CFPB, and it would continue its normal operations. Or SCOTUS could hear the case and concur with the 5th Circuit opinion. In this scenario, we expect the CFPB would have to cease its operations until such time that it receives appropriated funds from Congress. If this opinion was issued in June, we expect that the CFPB’s activities would be halted until December 27 (page 3), at the latest.

Meanwhile, CFPB permanently banned RMK Financial Corporation, which does business as Majestic Home Loans, from the mortgage lending industry by prohibiting RMK from engaging in any mortgage lending activities or receiving remuneration from mortgage lending.


Wednesday – March 1, 2023

MBS down 15 bps on the open. 10y up 5 bps.

Federal Reserve Chair Jerome Powell and his colleagues confront a “legitimate head scratcher” as they probe how high to raise interest rates in the coming months: Why is

wage growth slowing if the jobs market is so tight?

The answer will go a long way in determining whether the Fed can bring down inflation without doing that much damage to employment and the economy. If pressure on pay keeps easing even as employers keep hiring, policy makers may feel less compelled to push rates ever deeper into restrictive territory in their drive to return inflation to their 2% goal.

ISM PMI Manufacturing Index came in at 47.7 vs est 48. Was 47.4 previously. New orders rose to 47 vs 42.5. Production fell to 47.3 vs 48. Employment fell to 49.1 vs 50.6.

Tomorrow marks the end of the COVID era food stamp program. Which will impact about 32m people at a time when food prices are very high. The benefit of $251 per month will shrink to $81. Sad and helps lower inflation.

Biden administration plan to forgive student loans is not doing well in the Supreme Court.

The yield curve continues to invert, with the 10s-2s spread at -89 basis points. The last time we were at these levels was during the Volcker tightening regime during the early 1980s.

It was a wonderful three months for the US MBS index while it lasted. February’s performance of -0.29% in excess return brought an end to a three-month long period that was the best in the history of the index. From November through January the index excess return came to +2.30%, easily lapping the previous record of +1.77% in excess return seen from October through December 2010. Markets don’t move in a straight line, so February is nothing to panic about; just tip your cap to a great performance streak come to an end and move on. Things like that don’t happen too often.

Homebuilder Hovnanaian Enterprises reported a 8.8% decline in revenues and a drop in gross margins, which indicates that it had to use promotional incentives to move the merchandise. The cancellation rate rose to 30%.  Hovnanian is exiting the Minnesota, North Carolina, Tampa and Chicago markets.

Rocket Cos. lost $493 million in the fourth quarter, but management emphasized its long term goals and its recent expense reductions while also hinting at a new credit card product that could help further its lead generation in home loans.

In all of 2022 generated total revenue, net of $5.8 billion, delivered net income of $700 million, generated total adjusted revenue of $4.6 billion and adjusted net loss of $137 million, or an adjusted loss of 7 cents per diluted share. This company generated $133.1 billion in mortgage origination closed loan volume and gain on sale margin of 2.82 percent.

Recall that Rithm Capital (aka Newrezreported earnings: Mortgage origination volume fell 43 percent QOQ and 80 percent YOY to $7.9 billion. The company is guiding for 1Q23 volume to fall further to $5 – 7 billion. On the plus side, gain on sale margins rose 10 bp QOQ and 16 bp YOY to 1.81 percent. Funds available for distribution came in at $0.33, so the $0.25 dividend is well-covered at least for now

Thursday – March 2, 2023

MBS are down another 30 bps this morning. 10y up 7.

Neither of this morning’s reports were great for bonds.  Q4 is ancient history, but any indication of higher wage growth hurts.  Jobless Claims data is very timely and anything under 200k suggests full steam ahead for the labor market.

Bonds were already weaker overnight as overseas accounts sold steadily.  From a headline perspective, the higher Eurozone inflation numbers seem like they should have hit bonds harder, but again, the selling trend was very gradual overnight.

The focus now is on how much higher interest rates might go in the US and eurozone, with swaps markets now pricing a peak Fed policy rate of 5.5% in September, and some even betting on 6%. US 10-year yields, the main reference rate for the global cost of capital, rose 40 basis points in February and are consolidating their rise past 4%.

Market is digging deeper into yesterday’s ISM data. The index was in contraction (good for inflation) but the prices paid component was up (bad for inflation).

Plus inflation data out of the Eurozone came in hotter than expected.

Feds Bostic and Kashkari spoke yesterday expressing concerns over strong jobs and inflation. Once again enforcing “more hikes and no cuts this year.”

Even though several other unofficial (JOLTS, ZipRecruiter, etc) measures show softening – Jobless claims came in at -2,000 to190k. Another reading below 200k. Continuing claims fell 5k to 1.7m.

US stocks snapped two days of losses after Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank could be in a position to pause rate hikes sometime this summer. Treasury yields stayed elevated.

Traders ditched their low-conviction moves toward the middle of the trading day, pushing the S&P 500 higher. The Nasdaq 100 also jumped as investors considered Bostic’s comments somewhat dovish. Both indexes shrugged off the losses they suffered earlier after data signaled continued resilience in the

labor market, supporting the case for the Fed to keep raising rates.

In times of great uncertainty, rising interest rates and a rapid decrease in the dollar’s purchasing power, it behooves investors to get their cash back in hand as quickly as possible. This allows one to redeploy the cash into a higher yielding asset in a mad dash to, hopefully, check inflation’s destruction of your capital. For mortgage investors in a time like now, with the aggregate prepayment speeds in both Ginnie Mae and Fannie Mae 30-year mortgages falling to their lowest since Duran Duran was making the girls scream in the early 1980s, one source of relatively faster speeds is the Ginnie Mae II 15-year bonds.

Besides being a nice port from the storm should rates continue to ratchet higher (I expect the 30-year lending rate, for instance, to be over 7% by summer) the Ginnie Mae 15-year mortgage also tends to pay much faster than its conventional brethren.  Via Chris Maloney at BofOK

UWM Holdings reported Wednesday a $62.5 million net loss in the final three months of last year including a $150.8 million decline in the fair value of mortgage servicing rights. But it was still profitable from operations, UWM CEO Mat Ishbia contended. That’s a freefall from the third quarter’s $325.6 million profit and $239.8 million in the fourth quarter of 2021, when the market was still hot.

The company reiterated its claim as the industry’s top lender, boasting of a 54% share of the wholesale market and 11% share of the overall market in the fourth quarter; for the full year, this was 38% and 8%, respectively.

Friday – March 3, 2023

MBS up 30 bps early. 10y down 8.

Nice Rally Overnight. The most notable scapegoats arrived in the overnight hours with several weaker PMIs in Europe as well as a much lower Producer Price Index for the entire Eurozone. After a brief pull back heading into domestic hours, US trading is adding to the gains with 10yr yields down 8bps

This morning’s improvement is mainly due to stocks rallying on signs of underlying strength in the world economy. It is likely to be short lived though, and reprice risk on the day is high… especially for lenders that are quick to pass along the gains and quick to take it back (generally on the wholesale side). This is especially true since it is Friday, and lenders don’t want to leave themselves exposed to losing money on new loans over the weekend if Monday morning we wake up to a bad day.

      • ISM Non-Manufacturing
        • headline 55.1 vs 54.5 f’cast, 55.2 prev
        • prices 65.6 vs 67.8 prev
        • jobs 54.0 vs 50.0 prev

Anything over 55.0 in today’s ISM was likely to cause a bit of selling and here we are with a bit of selling (but only a bit so far).

The supplier deliveries index hit the fastest level since 2009, indicating that supply chain issues are mainly in the rear view mirror. The prices index declined, however it is still elevated. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins

22Q4 GDP came in at 2.7%, down from 3.2% in 22Q3, primarily due to softening consumer spending, suggesting weakening. However, in January the Fed’s favorite inflation measure meaningfully rose, with December’s reading being revised upwards. Consumer spending jumped 1.8% M-o-M, the largest rise in two years, probably aided by mandated minimum wage increases, annual pay raises, and Social Security inflation-adjustments of 9%. All that said, let the rate hikes continue.

Fed Governor Christopher Waller sounded hawkish in remarks yesterday: “I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation,” Fed governor Christopher Waller said in remarks posted on the Fed’s website. “But wishful thinking is not a substitute for hard evidence in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation.”

Nonfarm productivity rose 1.7% in the fourth quarter, according to BLS. This is a big downward revision from the initial 3% estimate. Unit labor costs rose 3.2%, which was driven by a 4.9% increase in compensation and a 1.7% increase in productivity. Manufacturing sector productivity declined 2.7%.

Today’s trading action flew in the face of the prevailing reaction function for the bond market.  Specifically, an important economic report was stronger than expected, but bonds rallied nonetheless.

Venture-capital firms raised a grand total of $20.6 billion in 22Q4, a 65% decline from a year ago, the lowest fourth-quarter amount since 2013, and returns fundraising to levels last seen in 2015. It was also less than half the amount raised in 22Q3, and the first time fundraising levels declined from Q3 to Q4 since 2009. Investors put money into 266 venture-capital funds compared to 620 funds in 21Q4.   via

Common Sources and influences






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