The Daily Tearsheet

Stocks are higher this morning as tech stocks rebound. Bonds and MBS are flat.

Building Permits rose 4.3% MOM in December according to the Census Bureau. This is down 2.2% on a YOY basis. Housing starts rose 6.2% on a MOM basis but fell 7.3% on a YOY to a seasonally adjusted annual rate of 1.4 million units. Housing completions were flat on a YOY basis at 1.5 million.

Homebuilder sentiment decreased in February according to the NAHB Housing Market Index. “Builders reduced their expectations for future sales as buyers report affordability challenges, which is contributing to declining consumer confidence for the overall economy,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, N.C. “While the majority of builders continue to deploy buyer incentives, including price cuts, many prospective buyers remain on the sidelines. Although demand for new construction has weakened, remodeling demand has remained solid given a lack of household mobility.”

“Housing affordability remains an ongoing challenge at the start of 2026,” said NAHB Chief Economist Robert Dietz. “The solution for the housing market is the enactment of policies that will bend the construction cost curve and enable additional supply of attainable housing. On the positive side, easing inflation should continue to allow lower interest rates for mortgages and builder loans.”

It sounds like supply isn’t the problem these days, with the builders cutting prices and the supply of unsold new homes at the highest levels since 2008. Approximately 36% of builders cut prices and the average cut was 6%.

The Federal Reserve wants to encourage banks to originate more mortgages. Michelle Bowman spoke at the American Bankers Association conference and discussed the Fed’s concern that mortgage origination and servicing is being handled mainly by nonbanks. In 2008, about 60% of mortgage origination was coming from the banking system, and today it is around 35%.

The Fed believes that banks have an inherent advantage in mortgage servicing and recognizes that the regulators may have overshot in the risk weightings and capital requirements for servicing rights. Essentially the amount of capital that banks were required to hold for servicing rights made servicing a non-economic business for banks. If you were in the mortgage business in 2012 and 2013, you could buy servicing for a song as banks unloaded them.

The other measure that the Fed is considering is changing the way banks set aside capital for mortgages. Under the current situation a mortgage is a mortgage is a mortgage. The regulatory and capital requirements don’t distinguish between a 95% LTV loan and a 60% LTV loan. The Fed looks like they will introduce for comment some sort of formula to ease capital requirements.

Of course regulatory timelines are long and there are comment periods etc. The big question for the banks is whether holding mortgages originated in-house meets the opportunity cost test. Ultimately this should be good for borrowers, although we might see a tightening of margins as more competition enters the space.

Fed Governor Michael Barr said the Fed is on hold for the moment and doesn’t feel a need to keep cutting rates. “Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks,” Barr said in a speech given before a gathering of the New York Association for Business Economics in New York.

Mortgage applications rose 2.8% from a week ago according to the MBA. Refis rose 7% and purchases increased 3%. The Spring Selling season is upon us and we stand the cusp of a mini refi boom as mortgage rates work their way below 6%.

“Mortgage applications rose last week as the lowest rates in four weeks helped to revive some refinance activity. Treasury yields ended the week lower as weaker data on retail sales and home sales outweighed better-than-expected readings on the job market for January,” said Joel Kan, MBA’s vice president and deputy chief economist. “Mortgage rates moved lower with the 30-year fixed rate decreasing to 6.17%, and all other loan types in the survey also declined. Refinance applications increased across all loan types, marking the strongest week for refinancing since mid-January. There was a drop in purchase applications overall, although VA purchase applications bucked the trend and increased 4%.”

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Stocks are lower this morning as investors return from a 3 day weekend. Bonds and MBS are up.

The week ahead will be dominated by the personal incomes and outlays report on Friday which contains the PCE Price Index – the Fed’s preferred inflation gauge. We will also get the first estimate for Q4 GDP, along with housing starts, leading indicators and a few other reports.

We also get the FOMC minutes on Wednesday along with some Fed speakers.

Chicago Fed President Austan Goolsbee said that interest rates could fall further if inflation hits its 2% goal. “If we could get some more improvement on the inflation side, I think rates can still keep going down a fair bit more, but we just need to see the progress on inflation,” Goolsbee said in an interview with Yahoo Finance. “And we need to see that the job market remains steady like it has been for a couple of months here.”

Not sure what a “fair bit more” means, and the comment about the labor market is strange. I guess he means if unemployment doesn’t work its way lower and inflation gets closer to the 2% target the Fed can cut rates further. Ultimately the labor market’s low hire / low fire status might look good on the headline numbers, but consumers are edgy and the sentiment indices indicate people feel like their job situation is rather tenuous.

Homebuilder TriPointe Homes is being taken over by Japanese company Sumitomo Forestry. “For more than 20 years, Sumitomo Forestry has consistently invested in locally led builders across the U.S. homebuilding industry, with one of its stated strategic pillars being the continued expansion of the number of homes the Company delivers to U.S. homebuyers. Upon completion of the transaction, Sumitomo Forestry expects to make meaningful progress toward its long-term vision Mission TREEING 2030 target of 23,000 annual U.S. home sales. Over its 17-year history as a U.S. homebuilder, Tri Pointe Homes has delivered over 58,000 housing units to U.S. homebuyers and continues to increase its volume of annual home deliveries with more than 6,400 in 2024, further strengthening Sumitomo Forestry’s position in key growth geographies. Together, the companies are committed to delivering sustainable, high-quality housing while increasing the supply of new homes for families across the U.S.”

Tri Pointe is being taken over at just under 14x expected 2025 EPS, which is a high multiple for an industry as cyclical as homebuilding. With President Trump talking about concentration in the building space (a specious argument if you ask me) the merger timing expectation (Q226) doesn’t anticipate any sort of lengthy antitrust review.

I guess it makes sense to start seeing consolidation in the homebuilding space. Typically the builders are an early-stage cyclical business, which means they are the first stocks to recover coming out of a recession. The interesting thing here is that for all the focus on a lack of supply and affordability issues, the physical inventory of single family homes for sale is close to the highs seen in 2008 as the real estate bubble was bursting.

With the builders sitting on inventory, some may become worried about financing it – unsold lots cost a lot of money to carry – and might also look to sell out.

Stocks are lower this morning on no real news. Bonds and MBS are up.

The Consumer Price Index rose 0.2% MOM and 2.4% YOY in January, which was below expectations. The core index which excludes food and energy rose 0.3% MOM and 2.5%, in line with expectations. Shelter rose 0.2% MOM and had the biggest impact on the inflation number. On a YOY basis, the index for shelter was up 3.0%.

Big increases were noted in utility gas services which rose 1.0% MOM and 9% YOY. This was offset by big declines in gasoline. It is strange to see refined products drop in price while the services part increases. My guess is this is weather-driven. Other notable increases was restaurants and medical services. Used cars declined.

Existing home sales fell 8.4% in January to 3.91 million. This was down 4.4% compared to a year ago. Weather was probably a big factor in the decrease, especially out East. “The decrease in sales is disappointing. The below-normal temperatures and above-normal precipitation this January make it harder than usual to assess the underlying driver of the decrease and determine if this month’s numbers are an aberration,” said NAR Chief Economist Dr. Lawrence Yun. “Affordability conditions are improving, with NAR’s Housing Affordability Index showing that housing is the most affordable it’s been since March 2022. This is due to wage gains outpacing home price growth and mortgage rates being lower than a year ago. However, supply has not kept pace and remains quite low.”

“Due to low supply, the median home price reached a new high for the month of January,” Yun added. “Homeowners are in a financially comfortable position as a result. Since January 2020, a typical homeowner would have accumulated $130,500 in housing wealth.”

The median home price was more or less flat YOY at $396,800. Affordability improved.

Delinquencies popped in the fourth quarter according to the MBA. FHA DQs were up big. “Mortgage delinquencies increased across all three major loan types – Conventional, FHA, and VA – in the last three months of the year,” said Marina Walsh, CMB, MBA’s vice president of industry analysis. “The most pronounced uptick was with FHA loans, which reached a delinquency rate of 11.52%, the highest level since the second quarter of 2021. While earlier-stage FHA delinquencies remained relatively flat compared to the previous quarter, later-stage, 90+ day delinquencies increased by 76 basis points. The FHA foreclosure inventory rate also grew to the highest level since the first quarter of 2020.”

Added Walsh, “The fourth quarter results may have been impacted by the expiration of pandemic-era, FHA relief options as well as disparities in the labor market – a key determinant of mortgage delinquency levels.”

Stocks are higher as earnings continue to come in. Bonds and MBS are up.

Investment grade Corporate credit spreads hit a 27 year low in January, while junk bond spreads are at an 18 year low. Credit spreads represent the increased yield over risk-free debt that investors require. It is a measure of risk / reward and at the moment it seems investors are comfortable taking more risk for less reward.

For all the consternation in the media about a flight from the dollar, that the US will lose reserve currency status, Trump’s destruction of international norms, etc. we aren’t seeing much evidence of that in global appetite for US corporate debt. Part of it is due to the fact that on an inflation and yield basis the US dollar is in a lot better place than, say the Euro.

How does this affect the mortgage space? The most obvious one is non-QM, which has been seeing incredible growth over the past 5 years. Money is flooding into the space and it seems that every day I get a email from some new DSCR wholesaler looking for paper.

The market for non-QM remains robust despite fraud issues in Baltimore in Philly and the general carnage we are seeing in Florida. MBS spreads are still normal on a historical basis, so perhaps there is more room for tightening there.

Kansas City Fed President Jeff Schmid spoke yesterday about monetary policy and the different flavors of growth. Essentially if growth is being driven by capacity increases or productivity, that is much more robust than growth that is driven by a spike in demand without any corresponding increase in supply. Productivity growth in the third quarter of 2025 was higher than any quarter between 2010 and 2019. The low churn labor market (low hire / low fire) may increase productivity further as employees gain skills and become more efficient. That said, he is still hawkish:

The job of monetary policy is to keep inflation near 2% and the labor market at full employment. With demand outpacing supply and inflation running closer to 3% than 2%, I see it as appropriate to maintain a somewhat restrictive policy stance. Restrictive monetary policy can help slow demand growth, giving supply time to catch up and alleviate inflationary pressures.

With the cumulative rate cuts carried out since 2024, the federal funds rate is now well off its post-pandemic high and arguably no longer restraining activity all that much, if at all. As I’ve said before, I think it is best to judge whether interest rates are restrictive or accommodative based on how the economy performs. With growth showing momentum and inflation still hot, I’m not seeing many indications of economic restraint.

Mortgage credit increased in January according to the MBA. “Mortgage credit availability increased in January, as lenders broadened their offerings of ARM loans, cash out refinances, and loans on second homes. Most of these require lower LTV and higher credit scores,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The beginning of the year is typically when lenders start to position themselves for the spring homebuying pick up, and recent dips in mortgage rates have provided windows of refinance opportunities, including refinances into ARM loans. Jumbo credit availability expanded almost 3 percent over the month, with the growth in supply of both jumbo and non-QM loan programs.”

Stocks are higher this morning after a decent jobs report. Bonds and MBS are down.

The economy added 130,000 jobs in January, according to the BLS. November and December payrolls were revised downward by 17,000. The unemployment rate fell to 4.3%. Average hourly earnings rose 0.4% month-over-month and 3.7% YOY. Health care, social assistance and construction accounted for the majority of the job gains, while financial activities and government declined.

The number of employed people increased by 528k, while the number of unemployed people fell by 141k. Those not in the labor force fell by 221k. This pushed up the labor force participation rate and the employment-population ratio.

The initial reaction in the bond market was a 7 basis point spike in yields. A March rate cut is looking highly unlikely. The Employment Cost Index rose 0.7% on a quarterly basis and 3.4% YOY.

Dallas Fed President Laurie Logan said she is cautiously optimistic that if the labor market remains stable no further rate cuts are needed. “If so, this would tell me that our current policy stance is appropriate and no further rate cuts are needed to achieve our dual mandate goals,” Logan said in remarks prepared for delivery in Austin, Texas. If instead inflation falls but the labor market cools materially, “cutting rates again could become appropriate. But right now, I am more worried about inflation remaining stubbornly high.”

Mortgage applications fell 0.3% last week as purchases decreased 2% and refis rose 1%. “Mortgage applications were relatively flat over the week, but it was a mixed bag for the different loan types. The 30-year fixed rate was unchanged at 6.21 percent, and conventional applications declined for both purchases and refinances as borrowers held out for another drop in rates or shifted to other loan types,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “FHA purchase and refinance applications increased, helped partially by the FHA rate declining and remaining 20 basis points lower than the conforming 30-year fixed rate.”

Mortgage delinquencies declined 16 basis points last month, while foreclosure starts rose 54% (probably seasonality). Foreclosures are up 27% on a YOY basis, but still below pre-pandemic levels. Foreclosure activity is being driven primarily by FHA.

We are seeing refi activity pick up as mortgage rates move lower. If mortgage rates fall to 6.0%, 5.5 million borrowers are in the money for a refi. At 5.875% that number jumps to 6.5 million. We are on the cusp of a refi wave if rates cooperate.

Stocks are flattish this morning on no real news. Bonds and MBS are up.

Small business optimism fell slightly in January according to the NFIB Small Business Optimism Index. Most subindices were unchanged, however we saw some improved optimism about future sales. That said, the uncertainty index also rose, which is a negative for sentiment. Employment fell slightly, capital spending rose, and compensation rose. Prices are still elevated, although inflation moderated.

NFIB Chief Economist Bill Dunkelberg discussed the disconnect between the official GDP numbers and sentiment:

“According to the official statistics, the economy is performing well. GDP is rising smartly while inflation remains relatively low and stable, as does the unemployment rate. Focusing on GDP, the economy is flying. A 4.2% gain in the latest release (Q3 2025) suggests we are in the middle of a boom. But meanwhile, small business owners aren’t “feeling the gain,” or at least not at that level of economic growth.

The NFIB Small Business Optimism Index hovers just above its historical average. The new Employment Index tells a similar story, with numbers just above their historical average, suggesting a balanced labor market, not a booming one. The official statistics show one story of the economy and small businesses show a more moderated one.

The “confusion” stems from the details of what GDP really means. This includes consumer spending, government purchases of goods and services, and investment (the creation of new productive assets). For example, new data center construction is booming to support AI growth. As such, one sector could be taking off, while most of the economy is more balanced. Major investment-led growth of one sector is not necessarily shared, and especially not right away. Bottom line, GDP growth is strong, but not equally distributed across the economy. Let’s see if 2026 brings more balance to these trends.

Dunkelberg’s point about GDP and vibes is important. While left econ will focus on the K-shaped economy, I come back to the concept of “junk GDP.” GDP is consumption, government spending, investment and the trade balance. Some components impact the general mood more than others. Consumption is the biggest part of GDP and that is generally associated with good vibes. When consumers are feeling flush and spending money the economy feels good. While the latest GDP numbers have been strong, they have been driven primarily by the trade balance, which means higher exports and lower imports. These measures have limited impact on the typical US citizen.

Investment generally increases jobs, so that is another impactful component. Government spending has less of an impact. Finally even consumption isn’t uniform: increased consumption of discretionary goods are associated with good vibes, while increased consumption of non-discretionary goods (food, gasoline, etc.) is not.

Retail Sales for December were flat on a month-over-month basis and rose 2.4% YOY. This was below expectations. The retail sales number is not adjusted for inflation, so if you subtract off the inflation rate of ~ 3%, real retail sales were down on a YOY basis. Autos and home furnishings saw the biggest YOY decreases.

The December retail sales number should drag down GDP estimates for Q4. It will be interesting to see what numbers the retailers put up in a few weeks.

Stocks are higher this morning on no real news. Bonds and MBS are down small.

The week ahead will have some big data reports with the Employment Situation on Wednesday and the Consumer Price Index on Friday. We will also get retail sales and existing home sales. We will also get plenty of Fed speakers as well.

The Super Bowl was last night, and that means the Spring Selling Season is unofficially underway. Buyers are in a much better position than they have been in years, however affordability remains a constraint. NAR expects existing home sales to rise 14%, which would imply something like 4.6 million units. Much will depend on mortgage rates continuing to work their way downward.

Consumer confidence improved in February, according to the University of Michigan Consumer Sentiment Survey. Most of the increase was driven by the stock market. Given the recent sell-off, it probably is a case of easy come, easy go. Concerns about the labor market continue.

Year-ahead inflation expectations slipped from 4.0% to 3.5%. This is the lowest reading since January 2025. Long-term inflation expectations increased from 3.3% to 3.4%.

Bloomberg reported that the Trump Administration is considering an antitrust investigation into the homebuilders, which caused their stocks to fall on Friday. On the face of it, the concept that the big publicly-traded homebuilders have any sort of monopoly market power to set home prices is dubious at best. The latest pace for new home sales in 2025 was 737k, according to the October new home sales report. Pulte delivered just under 30k homes in 2025. D.R. Horton sold just under 85,000 and Lennar sold 82,000 homes. If you calculate the Herfindahls (a measure of market concentration) you will conclude the homebuilding market is highly fragmented, not concentrated. The antitrust attorneys at DOJ are probably thinking “you have 4 health insurers which control the entire US healthcare system and you are worrying about this?” Given that the antitrust angle is largely a farce, this is Trump putting pressure on the builders to do something about housing affordability.

Speaking of housing affordability, the House is expected to vote on a package to help ease affordability with higher loan limits for multifam, support for construction and rehab loans, along with some other measures. The program is bipartisan, so it should pass.

Cotality noticed an uptick in fraud risk in the fourth quarter of 2025. “The percentage of refinances in the Cotality data set has increased year-over-year by 19%, yet the Fraud Index is up 1.5% over that time. This is significant because historically, refis bring a much lower risk of fraud than purchases,” said Matt Seguin, Cotality Mortgage Fraud Solutions senior principal. “The two riskiest segments of the fraud index, investment properties (+34%) and multi-unit properties (50%), have jumped significantly over the last year as a portion of the overall application volume seen by Cotality. The increase in volume in these two segments has led to a slight increase in the Fraud Risk Index. This change seems to have been driven, at least partially, by the surge in popularity of the DSCR loans.”   

Given the issues we have seen in Baltimore and Philly lenders should take close look at appraisals and ensure that any big increases in appraised value are documented.

Stocks are rebounding after a tough week in the markets. Bonds and MBS are down small.

Job openings fell to 6.5 million at the end of the year, according to the JOLTS job openings report. This is down 386k from November and just under a million for 2025. Professional and business services saw the biggest decline, dropping about 360k on a YOY basis. Manufacturing was flat, despite fears about the tariffs. Education and health services also had a sizeable decline. The quits rate was flat at 2.0%.

___________________________________________

New Feature: Expanded Market Data with SOFR Swaps

You’ll notice our daily market data now includes SOFR swap rates, provided by Eris Innovations. These rates are derived from Eris SOFR Swap futures (native CME Group contracts), offering a transparent view of long-term rates.

Why this matters for your workflow: Since SOFR replaced LIBOR, it has become the universal benchmark for financing. Using SOFR swaps—rather than Treasuries—for modeling and hedging offers several advantages:

• Capital Efficiency: Swap futures require significantly less balance sheet than cash instruments.
• Precision Hedging: Liquid across the curve (out to 30 years), they allow you to isolate benchmark interest rate risk from credit spread exposure.
• Strategic Utility: Already widely used for hedging MSR portfolios, but they are also becoming the instrument of choice for hedging ARMs, non-QM, RTL, and key rate duration for Agency mortgage portfolios.

By benchmarking against SOFR, and easily trading this with Eris SOFR Swap futures, investors can more effectively monitor the “pure” credit spread of their mortgage assets, which can then be separately managed using Mortgage TBAs. Contact john.douglas@erisfutures.com to learn how Eris SOFR can help you improve your execution.

_____________________________________________

Home price appreciation decelerated in January, according to the Clear Capital Home Data Index. The index declined 0.6% on a quarterly basis and rose only 1.7% on an annual basis. The Northeast was the only bright spot, with the South, Midwest and West showing quarterly declines. The New York City MSA took the top spot with prices rising 1.0% on a quarterly basis and 5.8% annually.

The laggards include a list of MSAs that were red-hot just a few years ago: Denver, Raleigh, Seattle, Nashville, etc. The hip-to-be-square trade continues.

Pennymac Financial Services stock got hammered on earnings last week, falling 38% over two days after releasing earnings. Production was up 10% on a YOY basis, lower than other companies but not terrible.

What was the issue with Pennymac? Prepays. The MSR portfolio exhibited higher than expected “realization of cash flows” which means loans were paying off faster than expected.

Mortgage companies had historically valued conventional mortgage servicing rights around 4 times the expected cash flow, however in the past few years, valuations have increased to the 5-6 range as companies accounted for potential recapture profits.

Recapture means what it sounds like – that if the company refinances its own MSR that potential p/l has some value. While Pennymac is complicated with its structure of two companies – PMT and PFSI – this stock behavior should serve as a shot across the bow for MSR valuations. If the loan prepays and you don’t get the refi, then a multiple over 5 simply doesn’t make sense.

Stocks are lower this morning as the “software as a selloff” trade continues. Bonds and MBS are up.

Job cuts surged in January, according to the Challenger, Gray and Christmas Job Cut report. Last month, nearly a quarter of a million job cuts were announced, which was the highest January since 2009. “Generally, we see a high number of job cuts in the first quarter, but this is a high total for January. It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.

Transportation was hit the hardest after a layoff announcement from UPS. Tech also was hit hard after layoff announcements from Amazon. Hiring plans were around 5,000 which was again the lowest since 2009.

Notwithstanding the January Challenger numbers, there continues to be a big difference between consumer confidence and the actual numbers in the labor market. The current consumer confidence numbers are at similar levels as the depths of the Great Recession, or the 1980-1981 recession, which was a doozy. If you look at the unemployment rate of 4.4%, an economist in the 1980s would have figured consumers would be jumping for joy.

After COVID, the negative correlation between the unemployment rate and consumer confidence broke down. The University of Michigan Consumer Sentiment Survey noted there is a big partisan breakdown – currently Republicans have a much more sanguine view of the economy than Democrats. They haven’t been tracking the partisan split for long, so it will be interesting to see if that dynamic flips once we get a Democrat in the White House.

I suspect the explanation lies in the fact we now live in media silos, where Team Blue media highlights all of the negative economic numbers while Team Red media highlights the positive ones. Unemployment is at 4.4%, Q3 GDP rose 4.4% in the fourth quarter, and the Atlanta Fed GDP Now index predicts GDP will grow at 4.2% in the first quarter.

_________________________________________

New Feature: Expanded Market Data with SOFR Swaps

You’ll notice our daily market data now includes SOFR swap rates, provided by Eris Innovations. These rates are derived from Eris SOFR Swap futures (native CME Group contracts), offering a transparent view of long-term rates.

Why this matters for your workflow: Since SOFR replaced LIBOR, it has become the universal benchmark for financing. Using SOFR swaps—rather than Treasuries—for modeling and hedging offers several advantages:

• Capital Efficiency: Swap futures require significantly less balance sheet than cash instruments.
• Precision Hedging: Liquid across the curve (out to 30 years), they allow you to isolate benchmark interest rate risk from credit spread exposure.
• Strategic Utility: Already widely used for hedging MSR portfolios, but they are also becoming the instrument of choice for hedging ARMs, non-QM, RTL, and key rate duration for Agency mortgage portfolios.

By benchmarking against SOFR, and easily trading this with Eris SOFR Swap futures, investors can more effectively monitor the “pure” credit spread of their mortgage assets, which can then be separately managed using Mortgage TBAs. Contact john.douglas@erisfutures.com to learn how Eris SOFR can help you improve your execution.

____________________________________________

Fed President Tom Barkin said he expected the US economy to remain resilient in 2026 and that productivity would continue to help in the fight against inflation. He compared the current boom in AI with the productivity boost we saw in the 1990s with the massive increase in PC capability and the early days of the Internet.

It was “a different question than the one we’re living with now,” with current inflation about a percentage point above target, not improving for the past year and the public contending with what is now a five-year inflation miss by the central bank, Barkin said.

“In their case, demand was quite strong … but inflation wasn’t. In our case, demand is not as strong, and inflation is higher. It is just a different conversation,” he said.

One of the biggest differences from the 1990s and today is that US was importing deflation as the Japanese economy collapsed. There is a possibility we could see a repeat of that with the Chinese economy as it wrestles with its own burst real estate bubble.

Stocks are flattish as earnings continue to come in. Bonds and MBS are up small.

The House reached a deal to re-open the government, which heads to Trump’s desk today to sign. The BLS has already delayed Friday’s jobs report, but hopefully the overall disruption will be small this time around. Yesterday’s JOLTS job openings report was delayed as well.

The deal funds most of the government through the remainder of the fiscal year, however the Department of Homeland Security only got two more weeks of funding. Democrats want to add more guardrails to immigration enforcement, so the negotiations on this aspect will continue.

The economy added 22,000 jobs in January according to the ADP Employment Report. This was below expectations and indicates that the labor market continues its low hiring / low firing mode. “Job creation took a step back in 2025, with private employers adding 398,000 jobs, down from 771,000 in 2024,” said Dr. Nela Richardson, chief economist, ADP. “While we’ve seen a continuous and dramatic slowdown in job creation for the past three years, wage growth has remained stable.”

We saw a sizeable jump in education / health services with 74,000 new jobs, however that was offset by a big decline in professional / business services, where 57,000 jobs were lost.

Compensation growth continues to moderate with pay increasing 4.5% for job stayers (unchanged) and falling to 6.4% from 6.6% for job changers.

______________________________________

New Feature: Expanded Market Data with SOFR Swaps

You’ll notice our daily market data now includes SOFR swap rates, provided by Eris Innovations. These rates are derived from Eris SOFR Swap futures (native CME Group contracts), offering a transparent view of long-term rates.

Why this matters for your workflow: Since SOFR replaced LIBOR, it has become the universal benchmark for financing. Using SOFR swaps—rather than Treasuries—for modeling and hedging offers several advantages:

• Capital Efficiency: Swap futures require significantly less balance sheet than cash instruments.
• Precision Hedging: Liquid across the curve (out to 30 years), they allow you to isolate benchmark interest rate risk from credit spread exposure.
• Strategic Utility: Already widely used for hedging MSR portfolios, but they are also becoming the instrument of choice for hedging ARMs, non-QM, RTL, and key rate duration for Agency mortgage portfolios.

By benchmarking against SOFR, and easily trading this with Eris SOFR Swap futures, investors can more effectively monitor the “pure” credit spread of their mortgage assets, which can then be separately managed using Mortgage TBAs. Contact john.douglas@erisfutures.com to learn how Eris SOFR can help you improve your execution.

___________________________________________

Mortgage applications fell 9% last week as refis fell 5% and purchases fell 14%. Weather probably had a significant impact. “Application volume was down last week, led by a 14% drop in purchase applications. Winter Storm Fern likely had an impact as much of the country was snowed in, hampering homebuying activity,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The annual increase in purchase applications was the weakest since April 2025. Refinance activity also decreased over the week, despite mortgage rates moving lower. The 30-year fixed rate averaged 6.21% last week, a slight decline, but not significant enough to incentivize more borrowers to refinance. Additionally, this week’s results are being compared to the week that included the MLK Jr. holiday.”

Private credit stocks like Blue Owl, KKR, TPG, Apollo have been getting crushed lately, which is something people in the mortgage business should watch. Blackrock TCP Capital Fund took a 19% writedown to net asset value last week and a lot of these funds have exposure to software companies.

While this doesn’t directly affect the mortgage business credit crises tend to spread and the area most likely to be affected is non-QM lending. With real estate prices flattening, average asking rents continuing to decline, overall suspicions about appraisal values there is the chance that the buy-side might pull back from the space.

Not saying this is imminent (they really are different spaces altogether) but credit problems can intensify and propagate to strange places.