Markets are jettison fixed income investments, particularly treasuries, but are still looking at junk bonds as a possible buy. Counter to the norms that treasuries are the safe place; defined as junk includes many corporate bonds are gaining attention based on the outlook that the economic growth will continue while treasuries push those corporate debt rates higher. Powell yesterday didn't follow the script many were expecting, that the Fed is concerned that inflation outlooks are increasing. The Fed, according to Powell, isn't concerned about inflation. Therefore, the Fed isn't ready to adjust its QE buying to support treasuries by more monthly buying of treasuries, switching to longer-term debt from short-term debt the Fed has preferred. The lack of immediate concern by the Fed that inflation is ticking higher isn't yet of concern. MBS prices tumbled 50 bps yesterday, and the 10
yr. note increased 8 bps to 1.56%.
According to what we read today in the WSJ, individual and institutional investors are also increasing purchases of what are known as leveraged loans, or corporate loans with junk credit ratings; and collateralized loan obligations, or CLOs, which buy up bundles of the loans and then repackage them into bonds. Unlike most debt, the interest that leveraged loans and CLO bonds pay investors rises when benchmark rates climb. Because it's a floating rate, you're de facto insulated from interest-rate risk, and the cherry on top is that a rising rate improves the return. The problem for investors is, there isn't enough of that debt around to satisfy the demand.
At 8:30 am ET, Feb employment data added more selling in MBSs and drove the 10
yr. note top 1.61% +5 bps. Feb jobs exploded compared to forecasts; NFP jobs expected +175K increased 379K, Jan NFP jobs revised from 49K to 166K. Private jobs were thought to be +183K jumped 465K, Jan private jobs revised from +6K to 90K. Manufacturing jobs in Feb were expected +16K, as released +21K. The unemployment rate also better at 6.2%, with forecasts of 6.3%. Average hourly earnings +0.2% as expected,
yr./yr. 5.3%, which was also as expected.
At 9:30 am ET, the stock market opened better; the DJIA +300, NASDAQ +120, S&P +37. 10
yr. 1.60% +3 bps. FNMA 2.5 30 yr. coupon at 9:30 am ET -14 bps from yesterday's close and -72 bps from 9:30 am yesterday.
The stimulus bill in the Senate now; Dems want a quick approval to finish the package this week, have the House quickly approve the Senate's changes, and send it to Biden's desk before the March 14 expiration of pandemic unemployment benefits. Republicans have vowed to slow the process. Yesterday, after the bill was introduced and the Senate voted to proceed, Senator Ron Johnson, a Wisconsin Republican, demanded the Senate clerk read the entire 628-page text aloud, a formality that is usually waived off. That process took nearly 11 hours, wrapping up just after 2 am this morning.
The 10 yr. climbed briefly to 1.61% on the employment data, then has backed off. MBS prices declined 20 bps, also holding its low at 102.81 last week.
PRICES @ 10:00 AM ET
10 yr. note: 1.59% +3 bp
5 yr. note: 0.82% +3 bp
2 Yr. note: 0.15% +1 bp
30 yr. bond: 2.32% unch
Libor Rates: 1 mo. 0.103%; 3 mo. 0.175%; 6 mo. 0.203%; 1
yr. 0.283% (3/4/21)
30 yr. FNMA 2.0: @9:30 100.34 -8 bp (-74 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.09 -14 bp (-72 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.02 -16 bp (-64 bp from 9:30 yesterday)
Dollar/Yuan: $6.4958 +$0.0258
Dollar/Yen: 108.33 +0.36 yen
Dollar/Euro: $1.1925 -$0.0047
Dollar Index: 91.89 +0.26
Gold: $1694.50 -$6.20
Bitcoin: $48,391 +$467
Crude Oil: $65.94 +$2.17
DJIA: 30,949 +25
NASDAQ: 12,620 -103
S&P 500: 3762 -6