UMBS 5.5 is off 23 bps early.
“Supply” is the theme of the day/week so far with bonds drifting weaker in the overnight session as European supply pushed EU yields higher. Now in the first hour of domestic trading, a slew of new corporate bond announcements is putting additional upward pressure on yields
The Index of US Leading Economic Indicators declined again in December, following a decline in November. The US LEI fell sharply again in December—continuing to signal recession for the US economy in the near term. Overall economic activity is likely to turn negative in the coming quarters before picking up again in the final quarter of 2023. Basically the labor market and consumption are the only things holding up the economy at the moment.
The Fed Funds futures are a lock for 25 basis points next week. A 25 basis point hike would put the Fed Funds target rate at 4.5%-4.75%, and the March futures see another 25 which would put us at 4.75% – 5%. The May and June futures see a 33% chance for another 25, and that probability gradually fades as we round out the year.
The street estimate for Q4 GDP is 2.7%, which is pretty robust, but the Atlanta Fed’s GDP Now estimate is for 3.5%. Both numbers seem high given some the ISM numbers showing contraction in manufacturing and services. Maybe some of this is inventory build which will have the effect of “borrowing” growth from Q1.
New LLPA matrices coming soon!!
The below chart gives a great representation of the changes:
The cash out change grid is
Bonds responded to a glut of corporate bond issuance in the morning. Higher oil prices and the looming Treasury auction cycle may have added to defensive trading strategies, but trading was so light that we’re not keen to read too much into it–especially when yields stayed perfectly mid-range.
40% of LO’s haven’t renewed their license.