CHM Blog

Last night the 10 year note continued its volatility, at one point the note that closed US yesterday at 3.58% dropped to 3.47% then climbed back to trade at 3.64%. Yesterday the 10 and the rest of the curve rocked by the SVB and Signature Bank failures, MBS prices fell as much as 100 points before settling +78 bps on the 5.5 coupon and 41 bps better on the 6.0 coupon.

At 8:30 am ET this morning Feb CPI, expected +0.4% m/m reported +0.4% down from 0.5% in Jan, year/year expected +6.0% also in line at 6.0%. The core. Ex food and energy expected +0.4% m/m increased 0.5%, year/year forecasts +5.5% year/year and reported +5.5%. Inflation right on estimates. The initial reaction was mute at 3.58% on the 10 year but the 2 year increased from 4.0% yesterday to 4.27% at 8:45 am. Stock indexes in futures trading at 9 am were higher. MBS prices at 9 am unchanged from yesterday.

The bank failures are not systematic in the banking system, just poor risk management that led to their downfalls. The money center banks reaping huge increases in deposits though as nervous depositors run to the big banks, not taking any chances even though the bank regulators have been clear that no depositor regardless the amount will be at risk. JPMorgan alone received billions of dollars in recent days. Bank of America, Citigroup and Wells Fargo are also seeing higher-than-usual volume, according to people with knowledge of the matter. “The top six banks in the US are and have been too big to fail, the financial crisis over 10 years ago demonstrated that,” Moody’s placed First Republic, Western Alliance, Intrust Financial, UMB Financial, Zions Bancorp and Comerica on review for a downgrade.

The blame game hasn’t started yet but it’s coming, always does. Did the Fed move too much, too quickly? Did some banks become too greedy? Next week the FOMC and Powell’s press conference that is always critical to traders, under the precarious circumstances the Fed will have to move the FF rate up another 25 bps, its baked in the current levels and as one analyst commented, to save face. The Fed may end the increases for the remainder of the year to ease pressures on lenders. Inflation is slowing, not going to meet the 2.0% target the Fed has set, stopping the increases is a strong possibility now with the potential of more turmoil within the financial markets. The inflation concerns may take a back seat to financial stability. Not predicting it but the Fed is on the hot seat now and may deem inflation a secondary concern until the system calms down and lenders make necessary adjustments to their risks.

At 9:30 am the DJIA opened +321, NASDAQ +175, S&P +52. 10 year at 9:30 am 3.62% +4 bps. FNMA 6.0 30 year coupon -14 bps and -35 bp from 9:30 am yesterday, FNMA 5.5 30 year coupon at 9:30 am -27 bps and -31 bp from 9:30 am yesterday.

The banking system is safe, that however is a narrow opinion now, global bankers becoming concerned. The failures have rocked confidence, it is the usual reaction to an unexpected event. The skittishness will likely continue through this week and into the FOMC meeting next Tuesday and Wednesday. Tomorrow Feb PPI, Feb retail sales NAHB housing market index.

Stocks improving, bank stocks that were pressured yesterday are recovering. Although emotions are running high and can swing rapidly now on any key news; technically the 10 year and the entire yield curve held key levels yesterday, the 10 fell to 3.40% yesterday before ending at 3.58%, the level that has held the note six times since last Dec; the 9-day relative strength index hit extreme over bought levels on the 10.

PRICES @ 10:00 AM

S&P 500: 3915 +59

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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