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MBS Highway Daily Updates 11/22/2022

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Current position: Floating



Stocks and Bonds are both higher to start the day. Some of the recent economic data, like Retail Sales, has shown that the consumer is remaining resilient...but is it the perfect illusion and how are consumers continuing to spend in this higher inflation environment? The answer - Credit Cards. Credit Card debt is up 15% over the last year, the largest jump since the 2001 recession. Additionally, servicing that debt has become more difficult, as rates on credit cards have jumped 2.75% due to Fed rate hikes.


The other component is savings. The savings rate has dropped to 3%, which is the lowest level since the 2008-2009 recession.


We have also talked about inversions on the yield curve, which is a sign of weakness in the economy and a recession to come. We recently just saw the longest maturity Bond, the 30 - year, and the shortest maturity Treasury, the 1-month, invert. This has only happened two times in history and each time we saw a recession follow shortly thereafter.


Potential Railway Strike


SMART - TD, one of the Nation's largest rail unions voted to reject their labor deal. BLET, another large rail union, voted to ratify the deal but said it would strike with any other unions that voted against it.


If there is no agreement met, the strike date is currently set for December 5. If this date is kept then strike prep would begin on November 28, which is the day the Senate comes back from Thanksgiving break. A strike like this would have an estimated negative impact of $2 billion per day and would not do any favors for inflation.


Auction

Later this afternoon at 1:00 pm ET there will be a 7 - year Treasury Note Auction, which could be a potential market mover. We will update you with the results in the market news section of the website.


Tomorrow

We will receive a Thanksgiving helping of data that is being pulled forward ahead of the holiday on Thursday when the markets will be closed.


The most important data will be New Home Sales and the Fed Minutes from the Nov 2 Fed Meeting. Historically, the days the Fed Minutes are released are tough on the markets, especially with how tough they have been talking on inflation and destroying the demand side of the economy.


Additionally, Mortgage Applications, Durable Goods Orders, and Initial Jobless Claims will be released.


Technical analysis

The 10 - year Treasury Note Yield has been testing the 50 - day Moving Average the last few sessions, which has held and kept a lid on yields. The 50 - day Moving Average is our friend and so long as we can remain beneath it, will be negative price action in Mortgage Bonds. If the 10 - year can catch a bid, there is a move to lower until reaching the lows from Nov 16 at 3.67%.


Mortgage Bonds have battled with resistance at 100.534 for the last week, and it has proved to be a difficult ceiling, rejecting Bonds each time. Bonds have a pretty strong support level beneath current prices at the 50 - day Moving Average, should prices continue to deteriorate. With the 10 - year remaining beneath its 50 - day, we can continue floating.