MBS have opened up 13 bps on the morning. Stocks in the green, being up 7 points.

Russia’s central bank raised interest rates from 8.5% to 12% at an emergency meeting yesterday, the highest level since April 2022. The move comes one day after the ruble dropped past 100 against the US dollar—valuing it less than a US penny—for the first time since Russia invaded Ukraine. Before the announcement, the ruble had briefly strengthened but its value remains down more than one-third since the start of the year.

Housing starts rose 4% MOM to a seasonally adjusted annual rate of 1.45 million units. This is up 6% on a YOY basis. Single family starts were up about 9.5% on a YOY basis while multi-fam was flat. Building Permits were flat MOM and down 13% on a YOY basis.

The homebuilders have been on a tear this year, outperforming the S&P 500 by 23% year-to-date. New Home purchase applications rose 35.5% compared to a year ago, according to the MBA. Yet sentiment remains low…….babies.

Industrial production rose 1% MOM, while manufacturing production rose 0.5%. Both numbers were above Street expectations. Capacity Utilization inched up to 79.3%.

Fed Minutes = Paraphrased bullet points:

  • Uncertainty remains.  Future changes = data dependent
  • Most said more hikes COULD be needed due to inflation
  • “a number” warned of overtightening
  • a couple favored holding steady
  • most saw more inflation risks
  • more evidence of lower inflation needed
  • gradual slowdown in economy seems to be happening
  • slower growth and softer jobs market still necessary to restoring balance
  • higher home prices taken as sign that housing response to rates has peaked

With specific focus on the last bullet point, the Fed seems to be overlooking the tight supply situation in housing, which is equally at fault for rising prices.  That tight supply, in turn, is due to the Fed’s over-accommodation in 2021 (locking homeowners into rates too low to give up).  It’s pretty circular.

Today’s Fed Minutes were uneventful with a volume spike that didn’t even eclipse those seen after today’s 8:20am CME open or the 9:15am Industrial Production data.  That puts them in very forgettable company among potential market movers.  Nonetheless, bonds sold off moderately into the afternoon.  This has less to do with things that happened today and more to do with the general trend.  Inflation is moving into the ensemble cast while growth, issuance, and the yield curve are getting more lines.

MBS closed down 17 bps.  This is down 34 bps from best spot of the day.  Stocks lost 34 points.

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