Current position: Carefully Floating
Bonds will go through their monthly coupon rollover after the close today. This occurs each month because Mortgage Bonds are finite. They have an end term, such as 30 years. Therefore, each month, a new 30-year period begins. This new 30-day extension is reflected in an adjusted rollover price. This rollover does not impact your pricing.
Stocks and Mortgage Bonds are both lower, but well off their worst levels.
Former Dallas Fed President Richard Fischer said the Fed wants to remain hawkish because it does not want to make another mistake. The big mistake they made was thinking inflation was transitory and not reacting soon enough. But the Fed is making another mistake by going too far. The Fed is not able to see into the future and operates by looking in the rearview mirror. They are not contemplating the lag and cumulative impact of all of their hikes from 2022, which will lead to them sending the US into a recession if we are not already in one.
Powell spoke this morning, and the markets were bracing for his comments, as he has been known to spook them with some of his commentary, but he did not say anything substantive. He only spoke on the importance of the Fed independence from politics, as well as their need to stick to their narrow scope and not expand it to things like climate change. The markets are paring most of their losses as a result.
NFIB Small Business Optimism Index
The NFIB December small business optimism index dropped from roughly 92 to 90, the lowest since June 2022 and a hair from the weakest since 2013. Overall, small business owners are not optimistic about 2023, as sales and business conditions are expected to deteriorate. Owners continue to call inflation their top business problem.
Looking at the internals, plans to hire and job openings fell, and those implementing higher selling prices were down a significant 8 points, which is deflationary and the lowest since May 2021.
MBS Highway Housing Survey
Here are some of the takeaways:
- Activity overall was unchanged from last month.
- There was a slight uptick in pricing pressure.
- There was a slight decrease in price reductions.
Mortgage Bonds once again have found support at the 25 - day Moving Average and are bouncing higher from it. The next ceiling is at 101.6712, which is a Fibonacci level. The 10-year is trading at 3.57% below its 3.644 Fibonacci level, 100-day Moving Average, and 25-day Moving Average, all of which will now act as resistance. The next floor of support is at 3.43%, so there is a lot of room for yields to continue lower, especially if we get more good inflation news this week. Continue Floating.