Good morning, market watchers! We’re having a Rolling Stones kind of week, with the bond market mirroring the band’s dynamism. MBS is up 15 basis points, indicating a promising direction. Let’s dive into the numbers that are shaping today’s market.
GDP’s Rocking Performance
The Gross Domestic Product (GDP) data came in strong, posting a 3.3% increase, surpassing the 2% estimate. This is a slight cool-down from Q3’s 4.9%, but the significant factor here is the prices paid component, which rose by only 1.5% against a 2.2% estimate. This lower-than-expected increase is a positive sign for inflation concerns.
The Bank Term Funding Program (BTFP)
In other news, the BTFP is set to expire on March 11. This program, which began amid regional bank turbulence, allowed banks to borrow against devalued securities at face value. With interest rates on these loans increasing, banks face higher costs, even as they load up before the program expires.
Housing Market: New Home Sales and Inventory
The housing market showed resilience in December. New home sales rose by 8% for the month and 4.4% for the year. Interestingly, the median home price dropped 3% for the month and 14% for the year, reflecting a shift in the mix of homes sold rather than a depreciation in home values.
### Inventory Levels and Sales Pace
Inventory slightly increased from 449,000 in November to 453,000. Despite this uptick, the month’s supply declined due to an increased sales pace, dropping from 9.2 to 8.2 months. Completed inventory also rose, which is a positive development for the market.
## Jobless Claims and Continuing Claims
Today’s jobless claims were higher than expected, coming in at 214,000. Continuing claims also rose to 1.83 million. These numbers may still be understated due to holiday adjustments and recent changes in eligibility requirements for benefits.
Treasury Auctions: A Market Influence
Recent two-year and five-year Treasury auctions have pumped significant supply into the market. Today’s seven-year note auction at 1:00 PM will be crucial in determining market direction.
Technical Analysis: MBS and the 10-Year Yield
The technical outlook is improving. The 10-year Yield broke above the 50-day moving average but has since fallen below, indicating a better inflation outlook ahead of the PCE release. MBS are squeezed between the 25 and 50-day moving averages, showing potential for upward movement.
As we roll through a week filled with critical economic updates, the market shows signs of resilience and cautious optimism. The key will be to navigate these waves with a keen eye on upcoming data and auction results.
