Morning Report: Job cuts lowest since 1993

Vital Statistics:

	Last	Change
S&P futures	4,513	8.2
Oil (WTI)	64.92	-0.58
10 year government bond yield		1.42%
30 year fixed rate mortgage		3.28%

Stocks are rebounding after yesterday’s sell-off. Bonds and MBS are up.

Initial Jobless Claims came in at 224k last week, which was up from 194k the week before. Last week’s print was a 50-year low, but it looks like it might have been a fluke.

Despite the falling 10-year rate, mortgage rates have not been falling much. In trader’s parlance, this means MBS spreads are widening. The current spread is about 70 basis points, which has blown out over the past couple of weeks, however it is around the average for 2021. FWIW, 2021 spreads were “tight,” compared to historical levels, which means that we should expect mortgage rates to fall grudgingly, and to rise easily going forward.

As a general rule, MBS prices tend to lag the moves in Treasuries, however there is more going on right now. The Fed is looking at accelerating its tapering process which means that demand for MBS is expected to fall faster than expected. Lower demand for TBAs = Lower Prices for TBAs = Higher Mortgage Rates.

The drop in commodity prices will probably give the Fed some wiggle room on how fast they need to raise rates, however the market’s perception is that the Fed is behind the curve. The drop in the 10-year rate doesn’t really make sense in this context, however IMO it is part of the global “risk-off” trade which is driven by the new COVID variant.

Announced job cuts fell to 14,875 last month, according to outplacement firm Challenger, Gray and Christmas. This was the lowest number since 1993. “With the Omicron variant emerging and the unknowns that come with its spread, coupled with the ongoing difficulty hiring and retaining workers, it’s no surprise job cuts are at record lows. Employers are spread thin, planning best- and worst-case scenarios in terms of COVID, while also contending with staff shortages and high demand,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.