MBS Highway Daily Updates 02/27/2023
Current position: Floating
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Stocks and mortgage bonds are both rebounding higher, as bonds are trying to form a technical base.
Pending Home Sales
Pending Home Sales, which measure signed contracts on existing homes, rose 8.1% in January, which was much stronger than the 1% gain expected and follows a 1.1% rise in December.
Sales are now down 24% from last year, which is an improvement from -33% in the previous report.
There was a considerable pick-up in activity in January, which is not known to be a strong housing month, as rates moved to the low 6s. We know that rates moved back up in February following the Jobs Report, so we should prepare for the next release of this report to be weaker.
But the reaction from buyers as rates moved lower was clear. And remember, we believe rates will improve following the February jobs report, which will be released on March 10, because it will likely be weaker and not have any of the adjustments we saw in the January report. Additionally, on March 14, the next CPI report has a good chance to be bond-friendly, as the comparative numbers from last year falling off are much higher. We also think the deflation in housing will begin to catch up.
As rates move lower and with the spring home buying season coming, we expect activity to rebound nicely in the coming months.
Durable Goods Orders
Durable goods in January were down 4.5%, which was worse than expectations. When removing transportation, however, they were up 0.7%. The headline figures are volatile because of the timing of large aircraft orders and the huge dollars involved.
Core durable goods orders in January rose 0.8%, which was above the estimate of no change, though December was revised down by 0.2%. Core shipments, which get plugged into GDP, grew by 1.1%, which was well above the forecast of up to 2.2%.
Tuesday: Case Shiller HPI, FHFA HPI (Appreciation Reports)
Wednesday: Mortgage Apps, ISM Manufacturing PMI
Thursday: Initial Jobless Claims
Friday: ISM Services
Mortgage bonds are up against a tough Fibonacci ceiling at 99.845, but have been trying to form a base the last several trading sessions around 99.73. The 10-year is also trying to form a base around 3.95%, which it is trading beneath currently and is once again testing 3.90%. With the ceiling in yields and floor in MBS holding for now, we can begin the week floating.