The Weekly Report


  •  Intermediate yields reacted to equity gains this morning, rising 2-3bp despite some more ragged data reports and a decline in the UMich inflation expectations survey. Higher oil prices helped as well, with Brent crude up to 2.2% to $66. Energy stocks have been the big gainer on the week at 4.7% with semi-conductors in second at 3.9%. Banks have strengthened as well.
  • Today’s bond trading volume slowed right after the better confidence numbers, leaving the curve to flatten from 5s to 30s. The movement in 3s and 5s was not enough to change any near-term Fed expectations. Inflation expectations closed the week up about 5bp for intermediate maturities.
  • Headlines for January CPI got off to a roaring start for the year, just as January numbers did 2016 to 2018. Inflation Lab walks through the numbers, finding a return of inflation in several sectors that fell too low during the summer. Combined with the upward ratchet in housing costs and the spillover from lower energy costs into a higher core number, traders will be sensitive to another hot number in February. Still, though, no visible signs of wage pressure in the broad numbers.
  • Consumers didn’t borrow as much as usual in the fourth quarter, perhaps linking to the retail sales disappointment in December? That’s not clear, but the latest household leverage report certainly joins the list of recent reports that leave economists scratching their head. To clear up misleading headlines this week about auto loan credit quality, several charts to revisit what has been an oddly persistent theme the last two years.
  •  Fannie Mae and Freddie Mac reported year-end earnings this week. A quick look at both, finding that lower tax rates helped both to increases over 2017 while what we consider core operating earnings to be lower at both. As discussions about the future of the GSEs heat up in Washington, policy makers should be carefully looking at current financial reports beyond the bottom line GAAP numbers.
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