Current position: Carefully Floating
Bonds will go through their monthly coupon rollover after the close of the market 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, but don't be surprised to see mortgage bonds move lower after the close.
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Stocks are higher. Mortgage bonds are trading near unchanged levels so far this morning.
Yesterday's 10-year auction/today's 30-year bond auction
Yesterday's 10-year auction was met with very strong demand. Our own Bill Hagmann graded the auction an "A" The bid to cover was well above the one year average, and direct/indirect bidders took 94% of the auction, meaning that dealers only got about 6%, another sign of strong demand.
As we expected, it appears that traders wanted to grab 10-year Treasuries after the spike in yields, following the misleading jobs report and ahead of the expected lower inflation data next week, which will likely send yields lower.
This helped mortgage bonds move higher and yields drop below 3.64%, which is an important technical level. Later this afternoon at 1:00 pm ET, there will be a 30-year bond auction, which we also expect to be met with above average demand. If this is the case, we could see some additional upside support in bonds this afternoon.
Conference Board CEO Confidence Survey
The Q1 CEO Confidence Survey, which is comprised of 142 CEOs that were surveyed during the second half of January, showed that CEOs remain cautious about the economy in 2023.
The index came out at 43, which is above the 32 in Q4, but is still below 50, which means there were more negative responses than positive. Here are some of the notable stats:
-93% of CEOs reported that they are preparing for a recession in 2023, although most think it will be brief and shallow. 55% of CEOs believe that a global recession is the greatest challenge for their companies.
-37% of CEOs expect to expand their workforce over the next 12 months, down from 44% in Q4.
-50% said they are reducing hiring plans, including selective hiring freezes.
Initial Jobless Claims
Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose 13,000 to 196,000, which was just above estimates but still below 200,000.
Continuing claims, or those that continue to receive benefits after their initial claim, rose 38,000 to 1.69 million, the most since the third week of December.
We are continuing to see companies try to hold onto workers, but once employees are let go, they are having a hard time finding new work.
More Anecdotes on the Jobs Report
When looking deeper into all of the supplementary data from the Jobs Report, you can see that they even admit that you cannot compare January to December or previous periods because of the adjustments:
Following usual Bureau of Labor Statistics (BLS) practice, official household survey estimates for December 2022 and earlier months were not revised; consequently, household survey data for January 2023 will not be directly comparable with data for December 2022 or earlier periods.
Additionally, the increase in population appears to be because of immigration:
The January 2023 adjustments reflect updated birth and death statistics; new estimates of net international migration, which reflect recent increased international migration; and methodological improvements. The majority of the overall population level change is due to the increase in net international migration in this year's adjustment, which follows reduced international migration due to the pandemic. However, other changes in the characteristics of the population are due to methodological improvements to the blended base.
Technical Analysis
Mortgage bonds have made a nice move higher from support at 100.758 and are now right up against resistance at the 50-day moving average. This is a tough ceiling that we now have to get past, with the 25-day moving average just above that, which will provide additional resistance.
The 10-year held at the 3.64% resistance level and is now testing its 50-day moving average at 3.58%. Like mortgage bonds, yields have 50- and 25-day moving averages that will provide a barrier to improving further, but a strong auction this afternoon or next week's CPI data could be the catalyst.
Looking at the momentum indicators, the stochastics on mortgage bonds have gotten back near oversold territory, while the stochastics on yields have gotten back near overbought territory, meaning that we could have momentum behind us for continued improvement in the week ahead. Continue carefully floating.