Weekly Mortgage Overview: 11/1/2021

By November 1, 2021Mortgage Overview

What Happened Last Week?

Nice Recovery as Month-End Trades Roll In

Month-end trading isn’t always helpful for bonds. There was plenty of positioning and repositioning Friday as traders initially jumped on the bandwagon of a flatter yield curve and then began to exit those trades after 10:30am ET. The flattener exit trades proved helpful for mortgage backed securities (MBS) with 2.5 coupons able to recover more than 3/8ths of a point, trough to peak. 10-year yields were down just over 2bps by the close.

Source: Matthew Graham, Mortgage News Daily 10/29/21)

What’s on the Agenda for this Week?

Three Things

The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Central Bank Palooza and (3) Jobs, Jobs, Jobs.

(1) The Talking Fed: Will this be the Fed meeting where they finally (and officially) announce their “taper”? The FOMC will conclude two days of meetings on Wednesday and at 2 pm EDT will give their latest Interest Rate Decision and Policy Statement followed by a live presser with Fed Chair Powell. The bond market expects a taper at this meeting. But the variable is by how much? Estimates range from $10B to $15B reduction which would equate to $5B in MBS and either $5B or $10B in Treasury purchase reductions. Experts are also going to pay very close attention to their “taper” language. Last time, it was “set it and forget it” while this time they build in the flexibility to increase/adjust the purchases on the fly without any advance notice.

(2) Central Bank Palooza: It’s not just our Federal Reserve that is in the spotlight this week. The Bank of England will also a key decision. Two weeks ago, the bond market had shifted to expecting a rate hike at this meeting and now it’s back to a 50/50 probability. The Reserve Bank of Australia is also important this week as it is the first of the Central Banks to have a meeting, and they stopped buying 2-year notes last week which was unexpected.

(3) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week with a report hitting every day, except Tuesday. The focus will be on Friday’s Non-Farm Payrolls and more importantly, Average Hourly Earnings.

Market Wrap-up

Domestic Flavor

Manufacturing: October ISM Manufacturing was a little stronger than expected (60.8 vs. estimates of 60.6), Prices Paid shot up to 85.7 vs. estimates of 78.4. The Employment component broke into positive territory with a reading of 52.0 vs. estimates of 49.6.

Construction Spending: September was weaker than expected, -0.5% vs. estimates of 0.4%.

On Deck for Tomorrow: Reserve Bank of Australia Interest Rate Decision, Economic Optimism Survey, Total Vehicle Sales.