Thursday – February 16, 2023

Another tough open for bonds. Down almost a quarter early. Treasuries up 4 bps. Bonds were sideways in quiet trading overnight. The big jump in producer prices and the sub 200k print in Jobless Claims kicked off a bit of weakness at 8:30am, but it was Mester introducing the 50bp rate hike idea that got things moving more quickly 15 minutes later.

This view was later echoed by her counter part at St. Louis, James Bullard.

Jobless Claims: 194 vs 200 f’cast [195 prev]

Down 1k on the week.   Continuing claims rose 16k to 1.7m

Core Producer Prices M/M: 0.5 vs 0.3 f’cast

Headline PPI:  .7% vs .4% est

Dec Revised from -.5% to -.2%

Inflation at the wholesale level grew at the fastest rate since June of 2022, according to the Producer Price Index. This was after two months of declines in November and December. The index rose 6.0% on an annual basis. Energy costs were the big driver. This was higher than Street expectations.

Philly Fed: -24.3 vs -7.4 f’cast [-8.9 prev]

Housing Starts: 1.309m vs 1.360m f’cast [1.371m prev]


Investors bought 48,445 homes in the fourth quarter of 2022, which is the second biggest quarterly decline.

NAHB home builder survey for Feb Increased 7 point from 35 to 42. Strongest 1 month gain in 10 yrs. Present conditions +6, Future outlook +11, traffic +6.

Chris Whalen has a great editorial about how FHFA is changing the rules for servicers as a result of COVID. Essentially loans in forbearance during COVID won’t be offered the same sort of reps and warrants relief as typically granted during a natural disaster. This creates an open-ended liability stream for mortgage bankers. Essentially the government asked servicers to offer forbearance and can now slug them for it.

He also mentions that a lot of banks are sitting on big unrealized losses on their portfolios of mortgages originated in 2020 and 2021. This includes Fannie Mae and Freddie Mac, which might explain the change in policy. He stated that banks have a $350 billion deficit for available for sale securities and loans. Many of these securities and loans are now trading at 15-20 point discounts in the market and might have to be sold. Hedge funds which are flush with cash might be able to pick up a good trade if that happens.


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