Wild morning on the bond market. MBS now down 2 bps. Though there was 26 bps of movement (both directions) to get here.

Back to “Zero Days” Without a Systemic Banking Contagion Flare-Up. While there’s not as much of an issue as something like Silicon Valley’s failure, the surge in Deutsche Bank CDS (credit default swap) got the market’s attention overnight. A credit default swap (CDS) pays out when a company defaults on its obligations. CDS spike well before a company officially goes under.

Deutsche Bank AG slumped 15%, the most since the early days of the pandemic in March 2020.

UBS Group AG shares dropped as Bloomberg reported that it’s one of the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs

evade sanctions, according to people familiar with the matter.

Domestic econ data (Markit PMI) came in a bit hotter and is not helping our cause. MarkIt PMI came in at 85.3 vs 47.5 Forecast (50.01 prev)

Durable Goods orders fell 1% in February. Ex-transportation they were flat. Both numbers were below consensus. Core Capital Goods orders (a proxy for business capital expenditures) were flat.

December Fed Funds Futures moved back to their recent lows, with 3.5-3.75% being the target (VERY different from what the Fed foresees). That discrepancy spells one thing in the weeks ahead: VOLATILITY.

St. Louis Fed President James Bullard spoke this morning. He refers to the current situation with the banks as similar to events in the past where rising rates caused financial stress, but didn’t tank the economy. He mentioned the Mexican Peso / Orange County crisis of the mid-90s, Continental Illinois in the mid 80s, and Long Term Capital Management in the late 90s as examples. The labor market remains exceptionally strong, however financial stress is increasing.

One picture is worth a thousand words, and here’s a nice chart of Fed Funds to help keep things in perspective.

Homebuilder KB Home reported first quarter numbers. Revenues were flat while gross margins contracted due to seller concessions and rising construction costs. Average selling prices rose 2% to $494,500.

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