Weekly Mortgage Overview: 3/28/2022

By March 28, 2022Mortgage Overview

What Happened Last Week?

What’s Up with the Massive Snowball Sell-Off?

Seemingly out of the blue, and without any clear connection to headlines or data, bond yields spiked relentlessly just after 9am Friday morning. There were several potential contributors in play at the time, but none of them big enough to explain the entire move. Considering the short end of the yield curve took far more damage than the long end, the best explanations are those that focus on the ongoing reprice of Fed policy expectations. Several trade desk updates and Fed speakers added fuel to that fire around the same time as Friday’s rate spike, but at a certain point, stop-loss levels were triggered and the snowball began to roll with self-sustaining momentum.
Source: Matthew Graham, Mortgage News Daily 3/25/22)

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) Inflation Nation, (2) Jobs, Jobs, Jobs and (3) Geopolitical.

(1) Inflation Nation: The Fed will issue their key measure of inflation, Core (ex food and energy) PCE, on Thursday. The core reading is expected to hit 5.5% on a YOY basis and the headline is expected to reach 6.7%. Both are astronomically high and very negative for long bonds. There will also be some pricing data out of ISM this week.

(2) Jobs, Jobs, Jobs: There will be a slew of job- and wage-related data in JOLTS, ADP, Challenger Job Cuts, Weekly Claims, ISM, Personal Income; and it all culminates in Big Jobs Friday with Non-Farm Payrolls, Unemployment Rate, Average Hourly Wages and more.

(3) Geopolitical: Global headlines from the war in Ukraine, sanctions, the attack on the petro-dollar, along with yet another major lockdown in China over Covid will impact pricing.

Treasury Dump

There are some shorter to mid-term range note auctions this week:

03/28: 2-year note, 5-year note
03/29: 7-year note

Market Wrap-up

Domestic Flavor

Treasury Dump: There were two shorter-term note auctions, and while they saw decent demand, the at-auction yields tell a terrible story. The at-auction yield of the 2-year note in February was 1.553% but at today’s auction it was 2.365%! Same story for the 5-year note: in February it was 1.880% and at today’s auction it was 2.543%.

On Deck for Tomorrow: JOLTS, Case-Shiller Home Price Index, FHFA Home Price Index, 7-year note auction.