MBS down 9 bps to start the week.
Treasuries hit their lowest yields since September right at the start of the European trading session as the UBS takeover of Credit Suisse was initially met with more doubt than relief. That trade gradually reversed as the European session continued. Yields ultimately broke even in the first hour of US trading before bouncing just slightly lower .
UBS will purchase Credit Suisse in a deal to (temporarily) end a crisis in confidence. The Swiss bank UBS is paying 3 billion francs ($3.3 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price per share marked a 99 percent decline from Credit Suisse’s peak in 2007. The Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Five years ago, CS still had a market cap of $45 billion.
Markets reacting to the Janet Yellen speech over the weekend. Money is moving around after she said that, in the future, the gov’t is only going to protect “fully insured” deposits. Well, unless they decide the bank failure would pose a systematic risk. So clarified nothing. This makes things tough for smaller banks.
There is also a lot of talk abut bank stress tests. Apparently their definition of “stress” was a brisk walk on treadmill. Their “worst case” was a .5% change and the 3 month treasury near Zero.
The Leading Economic Indicators report – measures 10 key areas of economy – came in at -.3% in Feb. 11th consecutive month of negative reading.
What’s also bad is the latest cost per loan figures released by the MBA. Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to $12,450 per loan in the fourth quarter. Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $2,812 on each loan they originated in the fourth quarter of 2022.
If there happened to be some significant economic data today, or on the next two mornings, financial markets might wait to see what it implied before diving head-first into the pastime of overanalyzing Fed rate hike odds. With essentially no relevant data between now and then, the task at hand is clear: get in position for the Fed (if you’re not already) and react to any major developments in the banking sector. Monday’s early trading suggests markets are actually right about where they want to be after a bit of overnight volatility surrounding the UBS takeover of Credit Suisse.