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MBS Highway Daily Updates - 11/17/2022

Updated: Nov 22, 2022

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Current position: Carefully Floating

Stocks and Bonds are both lower to start the day on comments from St Louis Fed President and voting member Bullard, stating that the Fed's policy is not yet restrictive and they may need to hike to 7%. Bullard is often an outlier and way off the consensus, but his comments spooked the Stock market and also Bonds, as it shows he doesn't believe inflation beginning to be corralled.

Yesterday's 20 - year Bond Auction was met with strong demand, as investors likely wanted to get in ahead of lower yields now that inflation has appeared to have peaked and is likely to continue lower.

Other Fed Commentary

-SF Fed President Mary Daly - Estimates the Fed Funds Rate will get to 5%, meaning 100bp more of hikes. At a 50bp pace, that means a hike in December and one more Feb 1 of next year. Pausing is off the table and not even part of the discussion, rather they are discussing slowing the pace.

-Dallas Fed President Lorie Logan - called the CPI report "a welcome relief" but noted more rate increases probably are coming, albeit at a slower pace.

-Fed Governor Waller - Looking toward the FOMC's December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50 - basis-point hike.

-KC Fed President George - hard to see inflation come down without painful outcomes - contraction in economy and slowdown in the labor market.


After two straight 75 bps rate hikes ECB policymakers may slow down interest rate hiking with only a 50 bps increase next month, according to people with knowledge of the matter. This is the same whisperer in the ECB as we have in the US with Nick Timiraos.


The November NAHB homebuilder survey fell from 38 to 33, which was three points beneath estimates.

-Present conditions - fell 6 pts to 39

-Future outlook fell 4 pts to 31

-Prospective Buyers Traffic dropped another 5 pts to just 20 vs the Covid low of 13

The NAHB said "To bring more buyers into the marketplace, 59% of the builders report using incentives, with a big increase in usage from September to November. For example, in November, 25% of builders say they are paying points for buyers, up from 13% in September. Mortgage rate buy-downs rose from 19% to 27% over the same time frame. And 37% of builders cut prices in November, up from 26% in September, with an average price reduction of 6%. "This compares with the 10-12% price cuts in 2008.

Part of the reason for such pessimism from builders - A squeeze on profit margins, "Even as home prices moderate, building costs labor and materials - particularly for concrete - have yet to follow. "

Housing Starts and Permits

Housing Starts in October were down 4% to a 1.425M unit annualized pace. Starts are down almost 9% year over year. Single-family starts, which are most important, were down 6% last month at an 855k unit pace. They are now down 21% year over year. So, while interest rates are higher, and demand is lower, supply should remain tight.

Housing Permits, which is the future supply, were down 2.4% last month at a 1.526M unit pace and are down 10% year over year. Single-family were down 3.6% last month to 839k units and down 22% year over year.

Completions are down 20% from last year to 1.34M annually. This is close to the number of household formations when retired/destroyed homes are considered.

There is a big difference between housing as the economic driver and housing the investment. Clearly, activity is in a recession, but the low supply environment will continue to be supportive of prices and the supply and demand dynamics are the exact opposite of what we saw in 2007 when there was a crash.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell from 4,000 to 222,000, but after a positive revision of 1,000 to last week. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 13,000 to 1.5M and have been significantly rising over the past few weeks. The rise in continuing could mean it's harder to find a job once let go.

Technical Analysis

Mortgage Bonds have broken back beneath the important 100.534 Fibonacci level. Bonds now are in a new range, with support almost 90bp beneath present levels. The 10 - year has moved back up to 3.77%, but is still beneath its 50 - day Moving Average. Begin the day carefully floating.


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