What Happened Last Week
Market Futures Up After Holiday-Shortened Week
We emerge from the weekend Christmas holiday with pre-market futures drifting upward, in something perhaps resembling a Santa Claus Rally, though it’s too early to tell. The S&P 500, after all, reached a new all-time closing high on last Thursday’s half-day session. Currently, the Dow and Nasdaq are both roughly +80 points ahead of today’s opening bell, while the S&P is +20 points.
Already we’re seeing retail sales numbers from the 2021 holiday season, and they are strong: +8.5% year-over-year over the period from November 1st to Christmas Eve, last Friday, December 24th. This is not including October shopping, which is instructional this year based on supply chain concerns, which pulled much of these retail sales a bit earlier.
Source: Yahoo! Finance 12/27/21
What’s on the Agenda for this Week?
Overview
Over the past two weeks, the benchmark mortgaged backed securities (MBS) has had a net change of only 1 BPS! What about this week? What are the major forces that can impact backend pricing during this holiday-shortened week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Covid, (2) Domestic Flavor and (3) Treasury Dump.
(1) Covid: As the Omicron variant now has more reported cases in the U.S. than the Delta variant (that was fast), the markets continue to focus on how global economies will function given the headwinds of restrictive movement, lockdowns and supply disruptions. China’s Shannxi Province has 13 million people on lockdown. Domestically, thousands of flights were cancelled as major airlines cannot get enough staff to work due to Covid cases surging among their workforce.
(2) Domestic Flavor: The biggest report of the week will be Thursday’s Chicago PMI. The Richmond Fed Manufacturing and Initial Jobless Claims will also get the attention of traders.
(3) Treasury Dump: This is the last week of dumping debt into the marketplace in 2021. While these are shorter-term note auctions, the level of demand that they receive will be of key importance to bond traders. Here is the schedule:
12/27: 2-year note
12/28: 5-year note
12/29: 7-year note
Market Wrap-up
Treasury Dump
Today kicked off three days of dumping debt into the marketplace with the shorter term 2-year note auction. $56B went off at a high yield of 0.769% with a bid-to-cover ratio of 2.55.
On Deck for Tomorrow
Case Shiller Home Price Index, FHFA Housing Price Index, Richmond Fed Manufacturing Index, 5 year Treasury note auction.