What Happened Last Week?
Mortgaged Backed Securities (MBS) Only Slightly Better while 10-Year Shines
The bond market is in the midst of repricing its assumptions about the yield curve after Wednesday’s Fed forecasts. Rate hike size and timing is being given just a bit more respect, and previous trades betting on a steeper yield curve are quickly covering. That translates to losses in 2-3 year bonds and gains in the longer end of the yield curve. Bottom line: longer-lasting bonds are doing the best. MBS don’t last as long as 10-year Treasuries so they’re not doing as well. The end.
Source: Matthew Graham, Mortgage News Daily 6/18/21
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) The Talking Fed, (2) Inflation Nation and (3) Central Bank Palooza.
(1) The Talking Fed: Did the markets get the message that the Fed wanted them to have? More importantly, did the markets behave the way that the Fed intended with last week’s FOMC message? This week the gloves are off and there is a ton of talking Feds that will spread the Fed’s message of “inflation is not real, and the massive shifts in inflation is merely transitory…nothing to see here folks…move along”. Meanwhile, the focus by long bond traders will continue to be on the timing of a “taper” that likely will hit at some point in the next 3 to 6 months and move the Fed’s monthly MBS purchases from $40B a month to slightly lower increments over a long period of time. Here is this week’s schedule:
06/21: John Williams
06/22: Jerome Powell
06/23: Michelle Bowman, Eric Rosengren
06/24: John Williams, Bank Stress Test Results
06/25: Eric Rosengren
(2) Inflation Nation: The Fed’s “preferred” key inflation measure will be issued on Friday with Headline PCE YOY expected to hit 4.0% and Core (ex-food and energy) YOY expected to top 3.4%.
(3) Central Bank Palooza: The Bank of England will issue their interest rate decision and policy statement in addition to a bevy of global Central Bankers including the ECB President LaGarde.
Market Wrap-up
Domestic Flavor
There were no domestic events today.
On Deck for Tomorrow: Existing Home Sales, Richmond Fed Manufacturing and a 2 year Treasury note auction.