MBS Highway Daily Updates 03/02/2023
Current position: Locking
Watch the replay of Barry's TV appearance on News Nation yesterday HERE.
The bond market is having another tough day as we wait for some more favorable news to turn the tide. Between the lag in shelter costs for inflation and the jobs data, the outlook is brighter, but the waiting is the hardest part. The market turned sharply since the Jobs Report, with the 10-year up 75bp over the 4-week period since.
Pressuring Bonds was yesterday's ISM Manufacturing data. While the index was in contraction for the third month in a row, the prices paid component did move up and showed another headwind for inflation.
Additionally, inflation data out of the Eurozone came in hotter than expectations, pressuring global bond yields higher.
Lastly, following the "strong" jobs report, which was skewed, Fed Presidents Bostic and Kashkari spoke yesterday and expressed their concerns about the strong job market and inflation. They want to see more rate hikes and for the Fed to not cut rates until 2024. Their hawkish tone also weighed on the markets.
While the markets are reacting to the jobs report, if we look at more real-time indicators from online job posting sites and recruiters, we see a different picture. JOLTs, Indeed, LinkUp, and ZipRecruiter all are showing job postings declining. Following the Jobs Report, these companies saw a spike in their stock price, as it was assumed they would benefit from the strong labor market. But after their earnings calls, showing weakness and their expectations for a weaker job market, reality set in. Their stock prices have not only moved lower but much lower than where they were before the Jobs report was released.
We will get our first indication of the February jobs data next Wednesday with the ADP employment report, followed by the important BLS Jobs Report next Friday. We hope to see some weaker figures, as they will not have the adjustments factored in that we saw in January.
Initial Jobless Claims
Even though hiring plans and job postings look softer, employers are clearly trying to hold onto the workers that they currently have. The claims figures were basically flat from the previous week; initial jobless claims, which measure individuals filing for unemployment benefits for the first time, fell 2,000 to 190,000 and remain below 200,000. Continuing claims, or those that continue to receive benefits after their initial claim, fell 5,000 to 1.7M, but there has been an upward trend in this figure. While these are volatile numbers, it's clear that once workers are laid off, they are having a harder time finding new work.
Mortgage bonds have broken beneath support and are now in a wide range, with the next floor of support another 30bp beneath present levels at 98.716. Even though we locked yesterday, we believe there is more potential room on the downside since support has been broken. Continue to have a locking stance.