Weekly Mortgage Overview: 4/11/2022

By April 11, 2022Mortgage Overview

What Happened Last Week?

Rates Keep Playing Defense Ahead of Volatile, Holiday-Shortened Week

Wednesday’s Fed Minutes might have served as an inflection point of sorts for the bond market. Thursday didn’t get too much weaker and trading was very flat. If Friday had managed modest gains, the takeaway could have been fairly positive. Instead, bonds continued to weaken on Friday as traders battened down the hatches against a gathering storm of volatility this week. Between the 3.5 days of trading, CPI data, Treasury auction cycle, and the ECB announcement, that probably makes good enough sense. At the very least, it’s enough to classify Friday’s sell-off as a byproduct of things we can see as opposed to an ill omen about things we can’t.
Source: Matthew Graham, Mortgage News Daily 4/8/22)

What’s on the Agenda for this Week?

Overview

This is a holiday-shortened week with the bond market closing early on Thursday at 2 pm ET and will be closed on Friday. There will also be a bond coupon rollover from April to May that very well may flip from the 4.00 coupon to the 4.500 coupon by Wednesday.

Three Things

The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) Central Bank Palooza, (3) Geopolitical.

(1) Inflation Nation, There will be several releases this week with market focused on the Consumer Price Index which is expected to eclipse the last reading, which was a 40 year high, with a new high. On a YOY basis, the headline CPI is expected to hit 8.5% and the Core (ex food and energy) to jump to 6.6%. There will also be PPI and Import Prices; both are inflationary data points.

(2) Central Bank Palooza: The Bank of Canada is expected to raise their rates as is the Bank of New Zealand. We will also hear from the European Central Bank. The market is not expecting a rate change from the European Central Bank but there are other policy changes that are on the radar of bond traders.

(3) Geopolitical: France’s election, Ukraine/Russia and China’s lockdown/manufacturing slowdown will garner a lot of attention from bond traders.

Treasury Dump

Here is this week’s schedule of dumping Treasury debt into the marketplace:

04/11: 3-year note
04/12: 10-year note
04/13: 30-year bond

Market Wrap-up

Treasury Dump

The week kicked off with a dismal 3-year note auction: $46B went off at a high yield of 2.738% with a bid-to-cover ratio of 2.48.

Inflation Nation

The Federal Reserve of Bank of New York’s March Survey showed that inflation expectations at the one-year time horizon soared to a new all-time high of 6.58% in March…up from the previous month’s 6.00%, a new series high and the third biggest one-month spike on record.

On Deck for Tomorrow

**Switch to the 4.500 coupon as the benchmark**, CPI, Core CPI, 10-year Note auction.