What Happened Last Week?
Friday’s Sell-Off Makes Rest of the Week Look Like a Trap
Over the past 2 days, we’ve pondered the fate of this week’s sideways-to-slightly-stronger trend in the bond market. Would it be the start of a correction that took yields even lower or merely a consolidation that allowed bonds to catch their breath before more selling? With today’s weakness in hindsight, “consolidation” seems like too gentle of a word. “Trap” is a better fit–the kind of trap that only a giant talking squid alien can warn you about.Source: Matthew Graham, Mortgage News Daily 1/14/22)
What’s on the Agenda for ths Week?
Two Things
The two areas that have the greatest ability to impact MBS backend pricing this week are: (1) Central Bank Palooza, (2) Bond Market shakeout.
(1) Central Bank Palooza: The Peoples Bank of China unexpectedly decreased their rate in between meetings in an effort to boost their economy which has over 10M in lock down and major manufacturing and shipping ports shuttered. The Bank of Japan kept their key interest rate at -0.1%.
(2) Bond Market Shakeout: The long bond market continues to adjust to believing that the Fed may in fact increase rates 3 to 4 times and not only end their MBS purchase program in March but actually move forward with the threat of decreasing their balance sheet (QT).
Market Wrap-up
Domestic Flavor
Manufacturing: The region Fed district NY Empire Manufacturing Index shocked to the downside, contracting by -0.7 vs. an expected expansion of 25.7 due to Covid.
Taking it the House: the January NAHB Housing Market Index was very high with a reading of 83 vs. estimates of 84. The report cited major concerns among homebuilders about inflation.
On Deck for Tomorrow: Housing Starts and Building Permits, Weekly Mortgage Applications and our 20Y Treasury Bond auction.