Weekly Mortgage Overview: 5/2/2022

What Happened Last Week?

Insult to Injury but Still Waiting on Next Week’s Fed

Mixed messages in Friday morning’s PCE inflation data send bonds skidding to worst levels of the week before 10am. Stability followed. It was eerily quiet at times–at least until the 3pm CME close. Shortly after that, buyers left the building in droves. Certain sellers pounced via programmatic trades after the 10-year logged its biggest monthly loss since 2009 and its biggest 2-month loss since 1984. Nothing about the afternoon’s sell-off has any implication for the road ahead though. The best info we’ll get on that front will come from this week’s Fed announcement.
Source: Matthew Graham, Mortgage News Daily 4/29/22)

What’s on the Agenda for this Week?

Three Things

The three areas that have the greatest ability to impact mortgage backed securities backend pricing this week are: (1) The Talking Fed, (2) Jobs, Jobs, Jobs and (3) Central Bank Palooza.

(1) The Talking Fed: May the 4th Be With You! On Wednesday will be the FOMCs Interest Rate Decision and Policy Statement. The markets widely expect a rate hike of 50 basis points but it very well could be 25 or 75 basis points as well. Of more importance is their forward guidance on their future hikes and if there is any actual action taken in regards to their balance sheet reduction process that is referred to as QT (Quantitative Tightening). Will they officially begin it? Or will they continue to state that it will start “soon”?

(2) Jobs, Jobs, Jobs: There will be a lot of job and wage related data this week culminating in Friday’s Jobs report. The bond market will be very sensitive to Non-Farm Payroll, Unemployment Rate and Wages.

(3) Central Bank Palooza: Our Federal Reserve is not the only game in town as interest rate hikes are expected out of the Bank of England and the Reserve Bank of Australia.

Market Wrap-up

Domestic Flavor

Manufacturing: April ISM Manufacturing PMI showed expansion but was lighter than expected, 55.4 vs. estimates of 57.6. Prices Paid was still very elevated at 84.6. The Employment component was weak at 50.9 vs. February at 56.3.

Construction Spending: March was much weaker than expected 0.1% vs. estimates of 0.7%.

On Deck for Tomorrow

Reserve Bank of Australia interest rate decision, Factory Orders, JOLTS.