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MBS Highway Daily Updates 01/04/2023

Current position: Carefully Floating

Stocks and Mortgage Bonds are higher to start the day. It's a relatively quiet economic news day, but the Fed will be in focus this afternoon.

Fed Minutes

Later this afternoon at 2:00 pm ET the Fed Minutes from the December 14 Fed Meeting will be released. This was the meeting where the Fed slowed their rate hikes from 75bp to 50bp. During his press conference, Powell alluded to going slower from here, signaling 25bp on February 1. We are going to look to see if the Fed acknowledged inflation coming down in the minutes and what their thought process is.

Often times, the days that the Fed minutes are released have a negative bias for Mortgage Bonds, so we must remain on guard, but if lower inflation is mentioned, Bonds could fall in love.

Mortgage Applications

The MBA released their Mortgage Application data for the previous two weeks, as they did not release a report during the holiday week. And since this was a holiday week and the end of the year, these numbers need to be taken with a grain of salt.

Purchases were down 12% and are down 42% year over year. Interest rates increased from 6.34% to 6.58%. Last year at this time, rates were roughly 3.33%, which means rates are around 3.25% higher today. Refinances fell 16% and are down 87% year over year.

Technical Analysis

Mortgage Bonds have broken above the 100 - day Moving Average and are starting to peak above the 100.758 Fibonacci level. If this level is maintained, the next stop is the 25 - day Moving Average.

The 10 - year has made a nice move lower, down 11bp to 3.68%. Yields have broken significantly below their 50 - day Moving Average and are headed for our next target of 3.64%. The Stochastic momentum indicators are looking solid for Bonds and could lead to a continuing improvement. We have to remain on guard for this afternoon's Fed minutes, but they could be Bond friendly if lower inflation is acknowledged. Begin the day carefully floating.


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