MBS are up 19. Winning back some of the Powell ground lost yesterday.

Although the ADP data came out at 8:15am and bonds improved shortly thereafter, it was actually the simple tolling of the bell marking the open at the CME that precipitated a rally of several bps in the bond market. Swaps traders price in a full percentage point of Fed hikes over the next four meetings

ADP Employment = 242k vs 200k f’cast [119k prev]

The bad news for the bond market is that annual pay increased 7.2%. Jobs holding strong. Giving more ammo to keep raising rates. As they keep saying, and nobody wants to believe.

The US trade deficit grew to the widest in three months at the start of the year, reflecting a pickup in imports of merchandise. The trade gap in goods and services increased 1.6% to $68.3 billion in January from a month earlier, Commerce Department data showed Wednesday. The figures aren’t adjusted for inflation.

This puts a lot of weight on the Consumer Price Index next Tuesday. The reaction in the bond market was muted on the long end (the 10 year didn’t do much) but we saw the 2 year yield increase by 22 basis points to 5.09%. The 2s – 10s spread hit a negative 103 basis points, which is the most inverted yield curve since just before the 81-82 recession, which was a doozy.

The Fed Funds futures now see a 50 basis point hike at the March meeting.

For-sale inventory declined in January, according to the Black Knight Mortgage Monitor. The company reported that home prices fell 0.13% MOM on a seasonally-adjusted basis, which is the smallest decline since it started about 7 months ago. Half of all mortgages are at rates of 3.5% or lower, while 2/3 are below 4%.

Congress is looking at a tax credit to incentivize builders to renovate homes in blighted areas. In many areas, the cost to renovate is more than the price the property could fetch on the market, so nothing happens.

10yr Treasury auction

• 3.985 vs 3.96 expectations
• Bid to cover 2.35x vs 2.38x avg

This is moderately to significantly weaker, depending on whether you want to include the past 2 hours of selling as a sort of pre-auction concession.  Either way, bonds moved quickly to the worst levels of the day

The Federal Trade Commission is set to sue to block the merger between Black Knight and Intercontinental Exchange. The two companies would need to divest either Encompass or Empower to get past the regulators. The problem is that the regulators probably won’t accept a spin-out into a separate company. They will have to find a strong buyer who will be able to compete with the newly merged company, and there probably aren’t many players in the industry who would be able to make it work. The merger spread is ginormous right now, so the market thinks this deal is deader than Elvis.

California’s CMG Mortgage, Inc. ($19 billion in 2022) announced its asset acquisition of the retail division of Homebridge Financial Services, a mortgage company based in Iselin, NJ, that originated $12 billion in the same year. “Over the last 30 years, Homebridge Financial Services has grown to become one of the largest privately held, non-bank lenders in the United States. Homebridge has more than 1,600 associates throughout the United States, more than 180 retail branches, and 2 wholesale divisions: Homebridge Wholesale and REMN Wholesale… Homebridge will retain its wholesale division