MBS down 33 bps on the open

CPI increased .4% MoM.   YoY declined from 6.4% to 6.0%.  In line with expectations

M/M Core CPI = 0.5 vs 0.4 f’cast/prev

Y/Y Core CPI = 5.5 vs 5.5 f’cast, 5.6 prev

Goods prices stayed the same.   Inflation was from Services and Shelter.  Shelter being 60% of total increase.  Shelter up by .8% (8.1% YoY)

What a difference a little systemic banking crisis makes! Without the last 3 business days, today’s CPI data may well have tipped the scales toward a 50bp Fed rate hike next week. As it stands, Fed Funds Futures have barely budged in response.

The regional banks are all rallying today despite news that Moody’s has placed a slew of them on review for a downgrade. Western Alliance is up big this morning after it increased its liquidity. First Republic is up 50%, as is PacWest.

If it weren’t for SVB, CPI numbers would justify a 50 basis point hike in the Fed Funds rate next week, but with cracks showing in the financial sector they probably can’t do that. The Fed Funds futures are predicting another 25 basis points with a small probability that the Fed stands pat.

Small business optimism improved in February, but remains well below its historical average. Inflation remains the biggest problem, although it looks like it has peaked, at least if you are looking at the number of firms planning price hikes. Labor is still a problem, as many small businesses have unfilled positions and cannot find the workers.

With the 2nd biggest bank failure in history on Friday and the 3rd biggest over the weekend, it isn’t entirely insane to keep an eye out for imitators. This was a concern as recently as the wee hours of the night when Fed Funds Futures moved to roughly 4% implied yields for the meetings coming up after next week’s. As hours ticked by without another failure, that number moved up about half a percent.  This has been the dominant theme today with CPI not having much of an impact.  MBS fared far better than Treasuries, mostly because Treasuries fared so much better than MBS up until the reversal.

While the failures of Silvergate and Signature are purely crypto-related and meaningless, there are two lessons to be learned from the failure of SVB. First, major risks to the financial system can come from non-money-center banks, and second, borrowing short (by holding customer deposits) to lend long (by purchasing long bonds and MBS) to slightly juice returns is a terrible idea. The Fed now raises by only 25bps. Via econ70.com

Guild Mortgage (NYSE: GHLD), a growth-oriented mortgage lending company originating and servicing residential loans since 1960, has acquired Cherry Creek Mortgage, LLC, a privately held Colorado-based lender with physical branches across the country whose business and customer-centric approach closely aligns with Guild’s.

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