MBS down 23 bps on the day. Stocks flat

The big news out just before the open this morning is that JPM has agreed to purchase First Republic Bank’s (FRC) assets and assume deposits. Because this helps alleviate risk in the banking sector, it was negative for the bond market. Traders may also be assuming that it means the supply environment will remain elevated as JPM could look for opportunities to sell some of the bonds it just acquired on the cheap.

This week, all eyes will be on the Fed and the economic data that is on docket. The jobs data starts with ADP on Wednesday followed by the nonfarm payroll data on Friday. The labor market will be a focus as it is generally strong during rate raises, but we did show signs of cooling in the March. The FOMC rate decision and press conference are on Wednesday with an expected raise of 25bps; the markets will be monitoring the minutes and press conference for some guidance on the path forward

ISM Manuf PMI Data just came out strong at 47.1 vs 46.8 forcest.

The US manufacturing economy improved in April, according to the ISM Manufacturing survey. Demand eased again, with the (1) New Orders Index contracting, but at a slower rate, (2) New Export Orders Index slightly below 50 percent but improving, (3) Customers’ Inventories Index entering the low end of ‘too high’ territory, a negative for future production and (4) Backlog of Orders Index continuing in strong contraction. Output/Consumption (measured by the Production and Employment indexes) was positive, with a combined 4.4-percentage point upward impact on the Manufacturing PMI® calculation. The Employment Index indicated slight expansion after two months of contraction, and the Production Index logged a fifth month in contraction territory, though at a slightly slower rate.

At the end of the day, MBS were down a big 31 points.   The 10yr treasury up 14 point.   WE have a convergence of 4 ceiliings nearby as traders predict the Fed’s comments

Yes, the US MBS index lost a bit more ground in April, with its excess return to Treasuries coming in at -0.10%, but considering the performance volatility we’ve been highlighting over the past year at least that’s a nice, “normal” return number. Over the last sixteen months (since the end of 2021) this is only the sixth month where the performance did not fall into the top two best or worst performance in history for that month. While overall volatility dropped sharply in January and has moved sideways since that time, performance returns still bounced around like a super ball. But not in April, and let’s take whatever good news we can these days.