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MBS Highway Daily Updates 05/25/2023

Current position: Carefully Floating



Stocks are higher after some blowout earnings from NVIDIA, while Mortgage Bonds are trading near unchanged levels to start the day.


Late Wednesday, Credit Rating Agency Fitch said it is moving the US to "rating watch negative" due to the increasing risks that the nation will default , although it added that it "still expects a resolution to the debt limit before the x - date." The so - called x - date is the day when the Treasury will run out of money to pay its bills, and which Treasury Secretary Janet Yellen has estimated will arrive on June 1.


Not that the Government didn't have enough reason to take this extremely seriously, but maybe it acts as a catalyst for them to make a deal. The latest headlines point to a deal as getting "close".


Fed Minutes

The Fed Minutes from the May 3 Fed Meeting showed that there was a lot of uncertainty at the Fed. Some Fed members want to hike at the June 14 meeting, while some want to pause or at least skip a meeting. "Participants expressed uncertainty about how much more policy tightening may be appropriate. Many participants focused on the need to retain optionality after this meeting."


The Fed Futures are now pricing in roughly a 60% chance of a pause and 40% chance of a 25bp hike at next month's meeting.


Pending Home Sales

Pending Home Sales, which measures signed contracts on existing homes, were unchanged in April, which was a little beneath estimates looking for a 1% gain. The West, Midwest, and South all saw increases, but there was a big decrease in the Northeast, which pulled down the overall index .


Sales are now down 20% from last year, which is an improvement from -23% in the previous report.


"Not all buying interests are being completed due to limited inventory," said NAR Chief Economist Lawrence Yun. "Affordability challenges certainly remain and continue to hold back contract signings, but a sizeable increase in housing inventory will be critical to get more Americans moving."


GDP

The second reading on Q1 GDP showed that the US economy grew at a 1.3% annual rate, which was an increase from first look showing 1.1%, but down from 2.6% in Q4 of 2022.

Germany, the fourth largest economy on the world, officially entered into a recession. This can be important, as recessions are typically highly synchronized throughout the globe.


CoreLogic Loan Performance Insights

CoreLogic released their loan performance insights for March, showing that loans 30 days or more delinquent decreased from 3% to 2.6%. Those 90 days or more delinquent increased from 1.2% to 1.4%. Lastly, loans in foreclosure were unchanged near a multi - decade low of 0.3%.


For all the talks of housing being unhealthy , all the delinquency figures are at very healthy low levels, albeit there was a little bit of an uptick in the seriously delinquent category, which we will keep an eye on. For perspective, total delinquencies were more than six times higher during the housing crash.


Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, rose 4,000 to 229,000. While that looks like an increase, the previous week was revised sharply lower from 242,000 to 225,000. The lower revisions could be a normalization after the fraudulent reports from Massachusetts and Kentucky a few weeks ago.


Continuing Claims, or those that continue to receive benefits after their initial claim, remained around 1.8M. This metric remains around some of the highest levels we have seen in a long time and shows pretty clearly that hiring has slowed, as people are continuing to receive benefits and not find a new job.


Technical Analysis

Mortgage Bonds are vacillating and much improved from where they were earlier this morning. Bonds tested support at 99.38, but were able to bounce higher and get back above support at 99.234. The 10 - year is a little higher in the early going, but did retreat after testing resistance at 3.786%. If we can get a little Bond friendly news, things are set up for a reversal. Begin the day carefully floating.


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