CHM Blog

Yesterday the 10 yr note ended the session at the highest level going back to last Nov and October, last night the note increased to 1.75% before pulling back to 1.73% at 9:00 am ET. MBS prices fell 36 bps yesterday and down 23 more at 9:00 am.

Weekly jobless claims at 8:30 am were 207K +7K from the prior week and in line with estimates. At 207K claims, we are back to levels prior to the COVID pandemic; it’s the holidays, however. Next week will be a better picture. Jobless-claims data can be volatile around the turn of the year and is adjusted to compensate for seasonal fluctuations, such as the end of temporary holiday jobs.

Stock indexes crumbled yesterday on Fed rate increases, early this morning holding well except for tech stocks still under pressure.

The minutes from the Dec FOMC meeting were expected to point to a faster tightening Fed, when the minutes were released, the forecasts proved correct and maybe a little more hawkish than even the most skeptics thought. Market reactions: the Fed will likely begin increasing interest rates as early as March or April, completely ending the $120B a month purchases of treasuries and MBSs by March (twice as rapidly as the Fed had indicated), and begin selling off its $8.76 trillion balance sheet. In short, the Fed appears to moving much more rapidly than markets were expecting. A strengthening economy and higher inflation will lead to earlier and faster interest-rate increases than previously expected, with some policy makers also favoring starting to shrink the balance sheet soon after. Jerome Powell, in a press conference following the December meeting, said recent inflation data informed the changes. U.S. consumer prices rose 6.8% in the 12 months through November, according to Labor Department figures, marking the fastest pace of increase in nearly four decades.

FOMC: “Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,”… “Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”

At 9:30 am the DJIA opened -28, NASDAQ -23, S&P -3. 10 yr note 1.73% +3 bp. FNMA 2.5 30 yr coupon -19 bps and -61 bps from 9:30 am yesterday. As mortgage rates increase it is coming time to focus on the 3.0 coupon, 3.0 down 14 bps and -39 lower than 9:30 yesterday.

At 10:00 am Dec ISM non-manufacturing index expected at 67.0, as reported 62.0. Nov factory orders expected 1.3% ncreased to 1.6%.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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