What Happened Last Week?
Big Reversal in Bonds After Stocks Sell Off
Bonds paradoxically sold off after Friday morning’s weaker jobs number. What happened next: a big sell-off in stocks that quickly pushed bonds past key stop-loss levels. After that, it was game over and the snowball rally was self-sustaining through the close. Mortgage backed securities (MBS) underperformed significantly yet again, but nonetheless managed solid gains on the day.
Source: Matthew Graham, Mortgage News Daily 12/3/21)
What’s on the Agenda for this Week?
This is a big week leading up to next week’s FOMC decision.
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Central Bank Palooza, (2) Domestic Flavor and (3) Covid.
(1) Central Bank Palooza: The People’s Bank of China has cut its RRR rate ahead of some potential bond defaults from Chinese developers. Key interest rate and policy decisions will be issued from Australia and Canada this week. The bond market will also be hedging towards next week ahead of the interest rate and policy action from our own Federal Reserve, the Bank of England and the European Central Bank.
(2) Domestic Flavor: The biggest report of the week is a key inflation gauge, Consumer Price Index, which is expected to be quite high with a headline YOY reading of 6.8%. JOLTS will also get a lot of attention as well Initial Jobless Claims.
(3) Covid: The story of the huge amount of Delta/Delta plus cases and now the Omicron variant continues to be a major driving force in the marketplace as bond traders are concerned about lockdowns and disruptions in the very strong economic growth shown in last week’s ISM releases. Omicron is now in 17 states and 45 countries but so far the health impact has been mild.
Here is this week’s Treasury auction schedule:
12/07: 3-year note
12/08: 10-year note
12/09: 30-year bond
There were no domestic events today.
On Deck for Tomorrow
Bank of Australia, Trade Balance, Non Farm Productivity 3rd Quarter Revised, Unit Labor Costs, 3-year Treasury Note Auction.