What Happened Last Week?
Moderate Weakness for Uneventful Reasons
Bonds lost some ground with 10-year yields up. Viewed holistically, the week was very calm and yields ended right in the middle of the range (1.22-1.30% in the narrowest terms). There were no sensational stories behind the move–just the sort of housekeeping trades often seen heading into auction cycle weeks. In other words, the weakness was incidental, and the skids were further greased by illiquid trading conditions.
Source: Matthew Graham, Mortgage News Daily 8/20/21
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) The Talking Fed, (2) Inflation Nation, and (3) Covid.
(1) The Talking Fed: This week begins the Kansas City Fed’s Jackson Hole WY Economic Symposium. Which, due to Covid in Teton County spiking, has now been moved to a virtual event, just like last year. All the major Fed players will speak, including Fed Chair Powell on Friday at 10:00 am ET. The bond market will be looking for any further momentum (or lack thereof) regarding the Fed’s asset purchase program of $120B in Treasuries and MBS.
(2) Inflation Nation: The Fed’s preferred key measure of inflation (YOY Core PCE) will be issued on Friday, and it’s expected to be well above 3%.
(3) Covid: Covid continues to be a significant driving force in the economy as the Fed and every major investor has downgraded the economic recovery. This will be a big factor in this week’s Jackson Hole meeting. The U.S. House is back from their break and will once again take up the $3.5T non-infrastructure package.
Market Wrap-up
Domestic Flavor
Taking it to the House: July Existing Home Sales were 5.99M vs. estimates of 5.81M. The median sales price increased to $359,900 which is up 17.8% from this time last year.
On Deck for Tomorrow: New Home Sales, Richmond Fed Manufacturing, 2 year note auction.
Global Flavor
Markit Down: The preliminary August Markit Services PMI was 55.2 vs. estimates of 59.5, Markit Manufacturing PMI 61.2 vs. estimates of 62.5.