What Happened Last Week?
Would Rates Be Going Higher Without Ukraine Situation?
Rates were rising abruptly as of last Thursday when the first major geopolitical jolt hit the market. After that, stocks and bond yields moved lower. Volatility increased, yields even returned to Thursday’s highs 3 more times, but never broke them. The longer markets avoid revisiting Thursday’s levels, the more we can consider that the current zone might have offered some sort of organic support, with or without Ukraine. Moreover, with the Ukraine situation not likely to be magically resolved by Tuesday, the case for short-term optimism is at least able to be argued for the first time in 2022. (Note: “able to be argued” is not the same as the case being strong, but at least it’s something.)
Source: Matthew Graham, Mortgage News Daily 2/18/22)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Putin Put, (2) Inflation Nation and (3) The Talking Fed.
(1) The Putin Put: The markets will continue to be very sensitive to the geo-political theater that is Ukraine/Russia.
(2) Inflation Nation: The Fed’s key measure of inflation, Core PCE, is expected to be in the 4.8% range on Friday, the higher this number is…the worse it is for pricing.
(3) The Talking Fed: A slew of Federal Reserve members speak this week, and while the bond market is expecting a 25 to 50BPS rate hike for the Fed’s Fund rate in just a couple of weeks….the real focus is on any new information about their balance sheet reduction (QT)
Market Wrap-up
Domestic Flavor
Taking it to the House: December YOY Case Shiller Home Price Index showed a 18.6% gain vs estimates of 18.2%. The MOM FHFA Housing Price Index gained 1.2% which matched the prior month’s pace.
Manufacturing: The February Richmond Fed Manufacturing Index was a big fail, hitting just 1.0 vs estimates of 12.
Consumer Confidence: The Conference Board’s Index was revised lower to 111.1 in January and came in at 110.5 in February.
Markit Up: The Markit Manufacturing PMI was strong at 57.5 vs estimates of 56.0 and the Services PMI was 56.7 vs estimates of 53.0.
Treasury Dump
The 2-year Treasury Note auction of $52B went off at a high yield of 1.553%. Demand was very strong with a bid-to-cover ratio of 2.64.
Central Bank Palooza
Hungary increased their interest rate for the 8th straight time to address inflation.
On Deck for Tomorrow
Weekly Mortgage Applications, 5 year note auction, New Zealand Interest Rate Decision.