CHM Blog

Eight trading sessions and the 10 year note flat-lined between 3.90% and 3.97%; yesterday the dam broke and the 10 increased to 4.00% (7 bps) on more hawkish comments from Fed officials. Two Federal Reserve officials called for more interest rate hikes to curb inflation. The talk sent US stocks lower and increased wagers for a higher terminal rate. The benchmark needs to rise to between 5% and 5.25% and stay there “well into 2024,” Raphael Bostic wrote. And Neel Kashkari said he’s open-minded about a quarter- or half-point hike at the next meeting, but it’s the dot plot that he’ll find most telling. Adding worries for the Fed: Corporate purchasing managers are seeing prices rising again. Plus, another puzzle for the central bank to solve: If the jobs market is so tight, then why is wage growth slowing? One key release yesterday that added to the increase, China's Manufacturing PMI (actual 52.6; expected 50.5), which hit its best level since 2012.

This morning more buying, the 10 year note at 8:30 am ET 4.07% plus another 7 bps to 4.07%; MBS prices began down 25 bps after dropping 25 bps yesterday. With the exception of one day (10/21/22) when the 10 blew off the 4 month increase in rates (4.30%), the high rate for the 10 year note has been 4.20%.

News from the wires. European Central Bank President Lagarde highlighted the case for a 50-bps hike later this month and said that future increases will depend on data. A Bank of England survey showed that expectations for one-year CPI stand at 6.4%, down from 7.4% in the previous survey. Bank of Japan policymaker Takata repeated that ultra-loose policy must be maintained.

Weekly jobless claims, thought to be 200k were 190K -2K from the previous week. The 4 week average 193K from 191.25K.

Yet another data point that is bothersome; Q4 productivity expected at +2.5% increased just 1.7%. Unit labor costs, one measurement of inflation, saw a huge increase, thought to be +1.4% labor costs increased 3.2% from 1.1% in Q3.

It has been almost two years worrying about inflation, the Fed messed up initially when Powell called the inflation increase “transitory.” Since then, inflation has dominated every day with Fedsters continually making comments, most that the Fed should keep going while a handful of other officials tossing out positive outlooks. The rate markets take every comment as the final word setting up confusion within markets. Markets are now betting that inflation, as measured by the 12-month change in the consumer-price index, will fall to about 2.8% by October, from 6.4% in January. CPI inflation runs a bit higher than inflation measured by personal-consumption expenditures (PCE) price index. If that relationship holds, markets’ CPI forecast implies PCE inflation would drop to around 2.5% by then according to a few analysts. PCE is the Fed’s favorite inflation gauge. A WSJ article this morning points out the CPI data is heavily weighted toward housing costs, 33% of CPI while PCE weighs housing costs about half of what CPI considers.

At 9:30 am the DJIA opened +65, NASDAQ -100, S&P -19. 10 YR 4.08% +8 bps. FNMA 6.0 30 year coupon -31 bps from yesterday’s close and -39 bps from 9:30 am yesterday.

PRICES @ 10:00 AM

S&P 500: 3942 -10

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.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.