Learn from the Past
Overview
Mortgage backed securities (MBS) gained just 1 basis point from last Friday’s close which caused fixed mortgage rates to remain at or near the same levels as the prior week.
It was a fairly quiet week in the bond market and the net change of only one basis point is certainly reflective of that. There was some solid housing news but no major economic releases that had the gravitas to impact mortgage rates. The bond market (which controls mortgage rates) was held in a narrow range as there was nothing really new on the trade front.
Domestic Flavor
Consumer Sentiment: The final reading of the November UofM Consumer Sentiment Index increased from 95.7 to 96.8.
Taking it to the House:
October Existing Home Sales were in line with estimates (5.46M vs. estimates of 5.47M), it was a very solid report.
October Existing Home Sales were in line with estimates (5.46M vs. estimates of 5.47M). It was a very solid report.
October Building Permits were higher than expected (1.461M vs. estimates of 1.385M). The SFR component moved up by 3.2% to 909K. Housing Starts came in at 1.314M vs. estimates of 1.32M. The SFR component moved up by 2% to 936K.
The November NAHB Housing Market Index remains in very high territory, coming in at 70. October the reading was 71. Any reading above 50 is positive and readings in the 70s are very high.
Manufacturing: The November Philly Fed Manufacturing Survey was stronger than expected (10.4 vs. estimates of 7) and was double October’s pace.
The Talking Fed
The Minutes from the last FOMC meeting were issued. You can read the official release here.
Central Bank Palooza
The People’s Bank of China dropped their key interest rate from 4.20% to 4.15%.
What’s on the Agenda for this Week?
Overview
This is a very short trading week with the bond market closed on Thursday for Thanksgiving but then reopening on Friday only to close early on Friday at 2:00. There is a ton of economic data that will hit on Wednesday due to several reports being moved from Thursday to Wednesday. After the Beige Book on Wednesday at 2:00, bond traders will go home even though the bond market is still open until 5:00. So, really there will only be three solid days of trading this week. Once again, it is all trade all the time with long bonds so any real news will have an impact on pricing. Experts don’t really expect any change out of the Fed this week. The revisions to the Q3 GDP as well as PCE will carry the most weight as far as data points this week.
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Trade, (2) Inflation Nation and (3) The Talking Fed.
(1) Trade: No official scheduled announcements are expected this week but the bond market will continue to be reactive to any tweets, rumors or speeches. The markets are still cautiously optimistic that some sort of Phase 1 deal is progressing; however, the next leg or Phase 2 is now considered only a remote possibility.
(2) Inflation Nation: Tthe Fed’s preferred measure of inflation (aka the “trigger rate”) will be on Tuesday with the PCE Core YOY number which is expected to remain at 1.7%. But bonds will be very sensitive to any upward movement in that data point.
(3) The Talking Fed: Fed Chair Jerome Powell speaks Monday night. The Fed’s Beige Book will be issued on Wednesday which is prepared two weeks ahead of the next Fed policy meeting.
Treasury Auctions this Week
11/25 2 year note
11/26 5 year note
11/27 7 year note
Market Wrap-up
Treasury Dump
The two year note auction was strong. $40B went off with a high yield of 1.601%. The bid-to-cover ratio was 2.63. Direct Bidders were very strong, at a 6 year high.
Manufacturing
The regional Dallas Fed Manufacturing Index was better (less worse) than expected with a decline of -1.3 vs. expectations for a larger decline of -2.5.
On Deck for Tomorrow
FHFA Housing Price Index, Case Shiller Home Price Index, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing, 5 year note auction.