MBS down 5 on the open. Stocks up 5. 10yT flat
Bonds traded flat in Asia and didn’t move much more for most the European session. The biggest market mover of the day was a 7:39am headline from CNBC regarding a fire sale on First Republic Bank bonds. With that news alleviating some of the risk aversion bid, bond yields moved up 4-5bps before drifting back down moments later. The durable goods data has mostly passed without a trace despite the big beat at the headline level. Perhaps the huge downward revision in the core number (which excludes defense and aircraft) offset the headline in traders’ eyes.
Durable Goods orders rose 3.2% in March, which was well above Street expectations. If you strip out transportation, they rose 0.3%. Core Capital Goods, which can be considered a proxy for business capital expenditures fell 0.4%.
vs -0.1 f’cast [-0.7 prev] last month revised down from -0.1
New orders ex-defense rose 3.5% in March after -0.8% in Feb.
Today’s a good day to decide if loans are committed to seeing what the Fed does next week, or else consider locking them today. Loans with lots of time don’t have to worry about floating, but risk averse and loans closing near term may see some pullback from the recent improvements between now and next week’s Fed meeting.
First Republic Bank (FRC) remains in focus as a tradeable name for financial markets. Yesterday’s earnings proved helpful but today’s headlines mostly pushed back in the other direction. Overnight news of bond liquidation efforts put pressure on the broader bond market for supply-related reasons (selling more bonds requires lower prices and higher yields, all other things being equal). FRC stock swooned early, then recovered. Bonds followed both moves and ultimately found their footing after headlines regarding restrictions on the bank’s borrowing from the Fed as well as an FDIC downgrade if a deal isn’t reached.
MBS ended up down 20 bps
Stocks down 16
10yr up 6 bps
As the date the U.S. Treasury will hit the debt ceiling approaches, investors are increasingly taking note. The cost of a one-year U.S. sovereign credit-default swap that pays out should a default occur has risen from its typical 10bps to 140bps and is rising exponentially. The peaks in 2011 and 2013 were about 80bps. Moreover, the 3-month minus 1-month Treasury spread is 166bps, normally it’s close to zero.
MBA’s Joel Kan about some stats on fundings per year: 13.7 million in 2020, 14.2 million in 2021, 6.4 million in 2022 (awaiting final HMDA data in June), and 5.0 million forecast for 2023. That puts 2023’s fundings at about 1/3 of 2021’s.