What Happened Last Week?
Range-Bound Risks as Rally Hits the FloorBonds started the day on Friday in moderately weaker territory. In so doing, 10-year yields are rejecting the opportunity to break below the 1.30% technical level. Notably, they rose above 1.30% just before the 3:00pm close Thursday (the time of day that holds the most weight for technical analysts in day-over-day terms). It remains to be seen how much 1.30% matters. It’s been more of a “center of gravity” for a sideways range recently as opposed to a true pivot point (unlike July). Coincidentally, 1.30% currently lines up with the bottom of the consolidation pattern, and in that regard, the bounce is much more relevant.
What’s on the Agenda for this Week?
Two weeks ago the net change was +5, last week the net change was -4… get the picture?
The three areas that have the greatest ability to impact mortgaged backed securities backend pricing this week are: (1) Inflation, (2) Retail Sales, and (3) Geopolitical.
(1) Inflation: Last week’s PPI of 8.3% was very scary. Will that translate to a big spike in Consumer Prices? The headline CPI is projected to hit around 5.3% which is more than double the Fed’s target rate of 2.0%.
(2) Retail Sales: Retail Sales are expected to decline again, this time by -0.8%. Of course a big chunk of that is Autos. Ex-Autos and Retail Sales are expected to decline by -0.2%.
(3) Geopolitical: This is really a grab-bag full of different things. There is the continued surge of the Delta variant, along with (at least) 2 new variants that are making headlines. After last week’s Treasury auctions, we are fast approaching our debt ceiling while the $3.5T non-infrastructure bill continues to concern markets with the newly proposed higher corporate tax rate of 26.5% which would be much higher than our peer nations and crush growth.