Overview of Last Week and the Agenda for this Week
Ending on an Equivocal Note Ahead of Fed WeekLooking through the small-scale volatility throughout last week, bond yields moved back up to last week’s lows as of Wednesday and have essentially remained flat since then. In that sense, Monday was the big panic day for markets, Tuesday was transitional, and the rest were equivocal. This week’s Fed announcement introduces bigger volatility risks. Beyond the Fed, daily Covid case counts (and any other significant Covid-related news) will continue to be scrutinized as traders attempt to gauge the impact of the delta variant and flatter vaccination rates.
The three areas that have the greatest ability to impact mortgage backed securities (MBS) pricing this week are: (1) The Talking Fed, (2) Inflation Nation and (3) GDP.
(1) The Talking Fed: On Wednesday we will get their latest Interest Rate Decision and Policy Statement followed by a live presser with Fed Chair Powell. This is not one of the meetings where the economic projections (dot plot charts) are released. The markets do not expect any action out of the FOMC. However, bonds will be very sensitive to any discussion (or progression in discussions) around the timing of “tapering” their massive $120B of Treasuries and MBS each month.
(2) Inflation Nation: The Fed’s preferred key measure of inflation, PCE, will hit on Friday. This is expected to once again be very high with the headline PCE tipping above 4.0%.
(3) GDP: There will be a first look at the 2nd quarter GDP data on Thursday which is expected to be in the 8.5% range.
Here is the schedule of this week’s Treasury debt auctions:
07/26: 2-year note
07/27: 5-year note
07/29: 7-year note
Taking it to the House: June New Home Sales were well off the mark, hitting only 676K vs. estimates of 800K.
Treasury Dump: The week kicked off with a very strong 2-year Treasury note auction.
On Deck for Tomorrow: Durable Goods Orders, Case Shiller Home Price Index, FHFA Housing Price Index, Richmond Fed Manufacturing, Consumer Confidence, 5 year Treasury note auction.