What Happened Last Week?
Solid Bounce, But Context Matters
There’s surely some great analogy to be made about perspective (filed under the -“everything’s relative” category). Bonds rallied quite nicely on Friday with 10-year yields having their best domestic trading session since before the last Fed announcement. MBS didn’t do quite as well, but they wouldn’t be expected to given the shape of the yield curve (shorter duration bonds not doing as well as longer-duration bonds). But (wait for it…) everything’s relative! 10-year yields at 1.64% are only good news compared to the previous 2 days. If you missed those 2 days, then Friday wasn’t so much a “nice rally” as a confirmation that rates are at their highest levels since April.Source: Matthew Graham, Mortgage News Daily 10/22/21)
What’s on the Agenda for this Week?
MBS OVERVIEW
Breaking down the week, experts see a small upside through Tuesday but then moving back to the lower end of the channel Wednesday through Friday. But what does that mean for rates?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities backend pricing this week are (1) Central Bank Palooza, (2) Inflation Nation, (3) Domestic Flavor.
(1) Central Bank Palooza: Kazakhstan (Central Asia’s largest energy producer) raised their key interest rate by 25 basis points to 9.75%. There will also be key interest rate decisions out of the Bank of Canada, the Bank of Japan, European Central Bank and the Bank of Brazil this week, ahead of next week’s Federal Reserve meeting, where they are expected to officially announce their taper. Bank of England’s meeting is considered a “live” event with the potential for a rate hike on deck.
(2) Inflation Nation: There are several reports this week with internal inflationary components but the market focus will be on the Fed’s key inflation measure, PCE, which will be released on Friday.
(3) Domestic Flavor: The bond market will continue to focus on Initial Weekly Jobless claims to see if there can be a sub-300K reading for the third straight week as this is the last Weekly Jobless Claims data point that will be part of next week’s NFP report. Also this week are the preliminary 3rd quarter GDP data which is expected to be in the 2.5% to 3.0% range and Chicago PMI. Tuesday’s Consumer Sentiment will also get a lot of attention.
Treasury Dump
Here is this week’s Treasury auction schedule.
10/25 2-year note
10/26: 5-year note
10/27: 7-year note
Market Wrap-up
Domestic Flavor
There were no economic events today.
On Deck for Tomorrow: Consumer Confidence, New Home Sales, Case Shiller HPI, FHFA Housing Price Index, Richmond Fed Mfg and 2-year Treasury Note auction.