What Happened Last Week?
Bonds Snap Back into Holiday Mode
Wednesday’s abrupt sell-off increasingly looks like the market’s way of getting caught up after 2 days of holiday closures in London (when London is closed, cash Treasuries don’t trade overnight during the European session). Things were a bit touch and go on Friday as yields rose back toward unchanged levels and MBS flirted with negative territory, but the PM hours saw a return of calm, thinly traded movement. It’s a bonus that the movement happened to be in a friendly direction. 10-year yields hit the 3pm close down roughly 4bps. MBS were nearly an eighth of a point higher at the same time.
Source: Matthew Graham, Mortgage News Daily 12/30/21)
What’s on the Agenda for this Week?
Mortgage backed securities (MBS) are under pressure as today is the first fully staffed trading session since before Christmas. The monster PCE and Chicago PMI reports over the last two weeks should have sunk MBS a lot more than it did and now that the bond market is fully functioning, the realization of those reports is starting to be seen in pricing. But what to expect this week?
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs, (2) ISM and (3) Covid.
(1) Jobs, Jobs, Jobs: There is a ton of jobs and wage related data this week which will culminate in Big Jobs Friday. The stronger the jobs data is, the worse it is for MBS pricing, and the weaker the data is, the better it is for pricing. This week will be JOLTS, ADP, Challenger Job Cuts, Initial Jobless Claims, Non-Farm Payrolls, Unemployment Rate, U6 Underemployment Rate, Average Hourly Earnings, and Average Weekly Hours.
(2) ISM: Last week there were some very solid regional manufacturing reports; this week the markets will focus on the national ISM Manufacturing PMI and the Non-Manufacturing (services) PMI. Both of these reports contain vital inflationary data in their Prices Paid component and employment data in their index as well.
(3) Covid: Last week saw new all-time high records almost each day. Manufacturing and port shut downs in China and other global exporters will be of great concern to macro economists as will restrictions and lockdowns domestically.
Construction Spending: November’s data was lighter than expected (0.4% vs. estimates of 0.6%), but it was due to an upward revision to October’s data from 0.2% to 0.4%.
On Deck for Tomorrow: JOLTS, ISM Manufacturing.