What Happened Last Week?
Rates Give Up on Friday After Briefly Trying to Hold Thursday’s Ceiling
There really weren’t any new reasons for the bond market to abandon all hope and sell off to even higher yields Friday, but they found some nonetheless. One of the only valid considerations was the active trading of the yield curve which is currently seeing the front end of the market price out any major risk of a 75bp hike in June. At the same time, the Fed confirmed the normalization timeline and amounts last week (which speaks more to longer-term debt). One of the ways markets trade this general long vs short battle is via curve trades (buy 2s, sell 10s or sell 2s, sell more 10s). Case in point, 2-year yields outperformed 10s massively on Friday, with the most epic glut of 2-year buying seen right at 9:30am. This suggests that traders were lined up to make these trades regardless of any of the data or events on Friday’s calendar.
Source: Matthew Graham, Mortgage News Daily 5/6/22)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgaged backed securities backend pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Treasury Dump.
(1) Inflation Nation: Other than the Fed’s key measure of inflation (Core PCE), there are the two most important inflationary gauges this week with Consumer Price Index and Producer Price Index. Both are expected to remain at very elevated levels with markets split on if they will truly show a peak or moderation in the pace of acceleration. Just how strong or weak these data sets are will have a major impact on your pricing.
(2) The Talking Fed: There is a lot of Fed speak this week with the bond market focusing on getting more of a consensus out of the Fed on what they consider a “neutral” rate, and the scale and timing of their rate hike path.
- 05/09: Raphael Bostic
- 05/10: John Williams, Raphael Bostic, Neel Kashkari, Loretta Mester
- 05/11: Atlanta Fed Business Inflation Expectations
- 05/12: Mary Daly, Fed Balance Sheet
- 05/13: Neel Kashkari
(3) Treasury Dump: There really hasn’t been any meaningful impact after the last several 10-year note auctions but there has been some volatility after the last couple of 20-year bond and 30-year bond Treasury auctions.
- 05/10: 3-year note
- 05/11: 10-year note
- 05/12: 30-year bond
Market Wrap-up
Domestic Flavor
There were no major domestic economic releases today.
The Fed
Atlanta Fed President Raphael Bostic said that he is on board with a neutral Fed Fund rate in the “2 to 2.5 range” and that a 75BPS hike at the next meeting is not likely.
On Deck for Tomorrow: 3-year Treasury note auction and six Fed Reserve speakers.