Good Tuesday AM,

Not much happening this week.

The lone data point today was the NY empire Manufacturing index which was dismal but also means very little. We do get retail sales number tomorrow and Capacity Utilization, which I do like, but are more B level reports. With little data markets are left to their own devices. There was some commentary over the weekend that the ECB may not cut rates at all in 2024. Very unlikely but that is spooking the markets a bit. The 10-yr is off a bunch with it yielding 4.07%. Mortgage bonds are only off a little. While rising yields are no bueno, what we do like is when the spreads tighten, which they have. More on that below…

The WSJ shared:

Mortgage rates keep on falling relative to the benchmark Treasury yield they track. The gap, or spread, between the two rates has narrowed for 10 straight weeks, and is now at its smallest since February, a factor that is helping keep mortgage costs in check. Since mortgage rates peaked at close to 8% in the fall, they have been falling faster than the benchmark 10-year Treasury yield. This week, the average 30-year mortgage rate ticked back up slightly to 6.66%, but the spread still narrowed. The shrinking spread is a welcome development for the hard-hit housing and mortgage lending industries. It has been abnormally wide since the Federal Reserve started lifting rates in 2022, giving mortgage rates an extra push higher. Now the shrinking spread is helping to drag rates lower. The spread is the extra premium over supersafe Treasurys that investors demand to own mortgages. Uncertainty about the path of rates has meant investors are buying less and demanding more yield. But with the Fed signaling it is done lifting rates, some demand for mortgages has returned.

Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening

Though the Federal Reserve stopped raising interest rates last summer, it is quietly tightening monetary policy through another channel: shrinking its $7.7 trillion holdings of bonds and other assets by around $80 billion a month. Now that, too, may change. Fed officials are to start deliberations on slowing, though not ending, that so-called quantitative tightening as soon as their policy meeting this month.

Please remain safe and stay healthy, make today great!