What Happened Last Week?
Another Shot at Consolidation. Is This Time Different?
Last Friday had a fairly classic “leveling-off” vibe to it with respect to interest rates. It was the only day of the week that 10-year yields made positive progress during domestic hours and it was by far the smallest upward movement of the week in terms of close-to-close yields. Additionally, it fell at the end of a trend of smaller upward moves throughout the week. Despite the positive cues, rates surged higher on Monday. Now here we are again with even better cues about consolidation, not to mention the fact that the higher rates go, the better the odds become for some form of recovery.
Source: Matthew Graham, Mortgage News Daily 3/18/22)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) The Talking Fed, (2) Geopolitical and (3) Oil.
(1) The Talking Fed: It’s the week after the last FOMC meeting which means the Fed’s self-imposed “media blackout” is over and there will be a slew of Fed speakers this week. They will take this opportunity to try to set the markets on the right path if they feel that the markets are not moving in the Fed’s intended direction and/or if they feel the markets have misunderstood the FOMC policy last week. Bond traders will be looking for more information on balance sheet reduction. Here is this week’s schedule:
03/21: Powell, Bostic, Daly
03/22: Williams, Mester
03/23: Daly, Powell
03/24: Waller, Evans, Bostic
03/25: Willliams
(2) Geopolitical: Russia/Ukraine and the humanitarian and economic toll will continue to be a big driver of safety into our bonds but that can shift very quickly depending on developments. Covid surges/shutdowns and corresponding supply chain disruptions also need to be carefully watched.
(3) Texas Tea, Black Gold: Global oil and energy (LNG) prices will continue to play a large role in the inflationary picture.
Market Wrap-up
Domestic Flavor
The Talking Fed: Fed President Jerome Powell spoke today and the MBS market reacted negatively to his statements: “If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” and “we are not expecting near-term progress on inflation.” He also eluded to quickening the pace of tightening the balance sheet.
On Deck for Tomorrow: Richmond Fed Manufacturing Index