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MBS Highway Daily Updates 12/07/2022

Current position: Carefully Floating

Stocks are trading near unchanged levels and Mortgage Bonds are higher after the productivity and unit labor costs report showed cooling inflationary pressures.

Jeffrey Gundlach, the founder of DoubleLine Capital and frequent CNBC guest, said that investors want to have long Treasuries as a part of your portfolio allocation - Meaning he thinks that yields will move lower in the future and prices will move higher, gaining you capital appreciation.

Productivity and Unit Labor Costs

Productivity in Q3 is improving and was up 0.8%, which is a big swing from the -4.1% in Q2. Unit Labor Costs were up 2.4%, which was lower than estimates of 3.1% and much lower than almost 9% in the previous quarter. Both of these components are deflationary.

Mortgage Applications

The MBA released their Mortgage Application data for last week, showing purchases fell 3% last week, and are down 40% year over year. Interest rates declined from 6.49% to 6.41% week over week. Last year at this time, rates were roughly 3.3%, which means rates are around 3 1/8 higher today. Refinances rose 5% last week and are still down 86% year over year.

Technical Analysis

Mortgage Bonds were able to hold the line at the 100 - day Moving Average and are now moving higher there is a lot of room to the upside until reaching the highs from December 2 at 101.75, roughly 35bp higher than current levels.

The 10 - year Treasury yield has broken well beneath the 3.57% level and is now battling the next floor at the 100 - day Moving Average, which is at 3.46%. This may be a difficult floor to get through, and we have to remain on guard. Continue Carefully Floating.


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