Markets bounce back after Tuesday rollercoaster

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Published Date 1/19/2022

A little better start this morning. The Fed raising rates in March is totally discounted at current levels, in fact the present level also discounts another rate increase after March. Mix in that the Fed is set to begin reducing its balance sheet at the same time and financial markets presently are being slapped hard. The impact on markets and the economy of combining the two monetary tightening’s in quick succession are unknown, and investors are telegraphing their concern. “The scale of what they’re contemplating now is completely unprecedented,” said Janice Eberly, a former Treasury Department official now at Northwestern University. “It’s prudent to gauge the market reaction, especially before moving the balance sheet in concert with interest-rate changes.”

This morning the 10 yr. started unchanged at 1.88% from yesterday but overnight the 10 yield continued higher to 1.90%. MBS markets totally unsettled, yesterday the price of the 3.0 FNMA coupon dropped 61 bps, this morning in early trading +23 bps. We expect another round of consolidation after the 20 bps increase for the 10 in two days. Stock indexes prior to the 9:30 am ET open fractionally better after the DJIA declined 543 and NASDAQ dropped 387.

Weekly MBA mortgage apps last week were better, the composite increased 2.3%, purchases +8.0% but re-finances were down 3.0%.

Dec housing starts and permits; starts were expected at 1.650 mil, as reported increased to 1.702 mil. Permits were thought to be 1.720 mil but jumped to 1.873 mil. Starts the strongest in nine months, driven by apartment projects. For all of 2021, 1.6 million homes were started, a 15.6% surge from the prior year and the most since 2006. Permits the highest since January of last year. Permits in 2021 surged 17.2% from the previous year. Single-family starts eased 2.3% in December to an annualized pace of 1.17 million units. At the same time, applications to build one-family dwellings increased 2% to the highest level since May.

At 9:30 am the DJIA opened +80, NASDAQ +79, S&P +22. 10 yr. 1.86% -2 bps. FNMA 3.0 30 yr. coupon +28 bps from yesterday’s close and -11 bps from 9:30 am yesterday. The total decline yesterday was 61 ps.

At 1 pm Treasury will auction $20B of 20 yr. bonds.

Source: TBWS

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