Good morning, everyone! Today, we see mortgage-backed securities (MBS) climbing by 20 basis points, a promising lift off the support level. Conversely, the 10-year Treasury yield has slightly decreased, setting the stage for a closer look at inflation, particularly the shelter component.
Shelter Inflation’s Role in the Big Picture
Inflation remains a focal point, especially in the shelter sector, which comprises rent and owners’ equivalent rent. Government figures suggest a 6.7% year-over-year increase in shelter costs, a figure fraught with data collection issues and expected catch-up in the coming months. This could have significant implications for overall inflation trends.
The CPI vs. Trueflation
The Consumer Price Index (CPI) currently stands at 3.4%, but a broader data analysis by Trueflation cuts this nearly in half to 1.87%. This discrepancy highlights the complexities in measuring inflation, especially in the shelter category, where Trueflation estimates a much lower 0.9% increase.
Looking Ahead: Key Inflation Data and Auctions
Friday’s Personal Consumption Expenditures (PCE) data release is eagerly anticipated. Market estimates hover around 0.25%, which could bring the year-over-year figure down to around 3%. Positive shelter data could potentially push this below 3%, a desirable outcome for the markets.
Mortgage Application Trends
The Mortgage Bankers Association reports a continued rise in purchase applications, up 8% last week, reaching the highest levels since April 2023. Despite being down 18% year-over-year, this trend aligns with expectations for increased activity as we approach the spring home-buying season.
Refinance Activity and Interest Rates
Refinance applications have dipped by 7% from the previous week and 8% year-over-year. Interest rates remain stable at around 6.75%, a slight increase compared to last year.
Upcoming Economic Releases
– Tomorrow, we anticipate the GDP and durable goods data, which could be market-moving.
– New home sales data will also be released, followed by the PCE and pending home sales data on Friday, warranting later updates on these days.
Treasury Auctions
Following an average outcome from the recent $62 billion two-year Treasury auction, attention now turns to the upcoming $60 billion five-year Treasury note auction. These auctions are critical to gauge market absorption and potential impacts.
Technical Analysis: MBS and the 10-Year Yield
MBS have rebounded from the support level, with the 25-day moving average as the next resistance point. There’s room for growth, approximately 14-16 basis points, before encountering this ceiling. The 10-year Treasury, showing a slight rise, is also under scrutiny for potential yield movements.
As we dissect the complexities of shelter inflation and prepare for significant economic data, the market holds a cautiously optimistic outlook. Technical indicators and auction results will be key in shaping our strategies in the days ahead.
