What Happened Last Week
Strong Showing Overall Despite Weakness
Bonds put in a solid enough performance on Thursday with 10-year yields almost perfectly unchanged by the close. Mortgage backed securities (MBS) outperformed, but not by enough to require investigation or explanation. The morning’s economic data was mixed, with a surprisingly strong Philly Fed survey producing a brief, negative reaction in bonds. After that, yields fell with stocks at the open and then stayed flat. In the bigger picture, the ho-hum performance helped reiterate a case for support after a quick move up from 1.41 to 1.65 (10-year yield) over the past 2 weeks. The key source of inspiration between Thursday and Friday was Austria’s Covid lockdown announcement. Yields plunged in response and didn’t do much else for the rest of the day. MBS, on the other hand, happened to slide toward weaker levels throughout the day.
Source: Matthew Graham,
Mortgage News Daily 11/18/21 & 11/19/21)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact MBS pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Data Deluge.
(1) Inflation Nation: The Fed’s key measure of inflation (Core PCE YOY) will be issued on Wednesday and it is expected to rise 3.6% to 4.1%, which is more than DOUBLE their target rate and could heavily influence their “dot plot” chart that is due to come out at their December meeting.
(2) The Talking Fed: Biden has decided to keep Powell as Fed Chair and elevate Governor Brainard to one of the Vice Chair positions. The bond market is now squarely focused on the pace of their taper after December.
(3) Data Deluge: It will be a monster Wednesday as there will be all of the usual Thursday and Friday releases crammed into Wednesday due to the Thanksgiving Holiday. In addition to PCE mentioned above, there will also be Personal Incomes and Spending, Initial Weekly Jobless Claims, Durable Goods Orders, GDP, New Home Sales, Consumer Sentiment
Treasury Dump
Here is this week’s Treasury auction schedule:
11/22: 2-year Note, 5 year note
11/23: 7-year note
Market Wrap-up
Domestic Flavor
Taking it to the House: October Existing Home Sales were up +0.8% MOM, 6.34M annualized units vs. estimates of 6.20M. Median Home Prices increased by 13.1% YOY to $353,900 which is a record 116 straight months of YOY pricing gains.
On Deck for Tomorrow: Richmond Fed Manufacturing Index.
Treasury Dump
There were two Treasury note auctions today, a 2-year and a 5-year. Tomorrow will be the 7-year.
Central Bank Palooza
The People’s Bank of China kept their key interest rate at 3.85%.