What Happened Last Week?
Sideways to Start the Week, But That’s Still a Victory
Last Friday’s jobs report sparked a reasonably big bond rally. In terms of 10yr yields it was one of the best days in weeks, if not months (depending on whether we’re measuring from the previous close or the opening trade of any given day). This created a risk that traders would seize the gains as a sort of selling opportunity–especially with yields bouncing almost perfectly at the 1.56% technical level. While we did see a bit of weakness today, it was almost too small to count. That’s a victory considering Friday’s gains, but volume and volatility were so low that we arguably haven’t seen a representative sample of traders show up for the week.
What’s on the Agenda for This Week?
It looks like Thursday will be a very pivotal day.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Inflation Nation, (2) Central Bank Palooza, and (3) Treasury Dump.
(1) Inflation Nation: Just how long will the market believe the Fed’s “transitory” mantra? This week’s Core (ex food and energy) CPI is expected to be above 3% with the Headline CPI above 4%. The bigger this number is, the worse it will be for mortgage backed securities pricing. While the Fed is on a media blackout period leading up to their next FOMC meeting, Treasury Secretary Janet Yellen has given an interview where she said that slightly higher interest rates would be positive for both the consumer and in the Fed’s minds as well.
(2) Central Bank Palooza: Key interest rate decisions and policy statements will be issued from the European Central Bank and the Bank of Canada.
(3) Treasury Dump: While debt will be dumped into the marketplace on three days this week, it will be Thursday’s 30year Treasury bond auction that will get the most attention from bond traders and has the greatest correlation with long term bond yields. Here is this week’s schedule:
06/08: 3-year note
06/09: 10-year note
06/10: 30-year bond
Consumer Credit: Dropped in April to $18.61B vs. estimates of $21B.
On Deck for Tomorrow: JOLTS, Trade Balance, 3-year note auction.