MBS 5.5 up 6 bps early. Not much, but on the good side of things for once.
Bonds were flat to slightly weaker in Asia, but rallied with European bonds after 3am on a combination of economic and inflation data. In the 8am-830am time frame, there was some new selling pressure after several comments from an ECB official.
After that, a handful of corporate bond announcements contributed to a bit more weakness. US equity futures slumped on Wednesday, as recent earnings reports from the likes of Microsoft Corp. fanned concerns about the health of corporate America and investors grew wary that Berlin’s decision to approve the re-export of German-made tanks would provoke an escalation in the Ukraine war.
In terms of economic data, mortgage applications were +7% week over week. Lower rates helped boost the refinance activity by 15%.
Today’s only discernible intraday movement followed comments from the Bank of Canada’s governor regarding the “conditional” nature of their rate hike pause. Even then, the move was mild and bonds quickly recovered. A strong 5yr Treasury auction helped reinforce the recovery.
We are seeing the financials increase provisions for credit losses. Capital One provisioned $2.4 billion, which was a big increase from $1.9 in Q3 and $388 million a year ago. Given Capital One’s credit card exposure this is a warning that the consumer might be facing some trouble.
In other consumer banking results, we saw increases in provisions from Ally and Synchrony as well. For Ally, provisions are back towards pre-pandemic levels.
One bank that bucked the trend was Western Alliance, which provisioned only $3.1 million in credit losses in Q4 compared to $28.5 million in Q3. Asset quality remains robust, and charge-offs are low. Given that Western Alliance has some hefty exposure to the mortgage industry, this result is encouraging.
Homebuilder D.R. Horton announced earnings this morning that missed Street expectations, as earnings fell 13%. Revenues were slightly positive. Net sales orders fell 38% and the cancellation rate rose to 27%. Backlog fell 46%.