What Happened Last Week?
Weaker Friday, But Stronger vs Previous Week. Stocks in Control
Blaming stocks for movement in the bond market (and vice versa) is usually a cop out, but occasionally relevant. The latter is arguably the case last week as Monday saw a big drop in stocks to the lowest levels in over a year (depending on the index). It took bonds a while to catch on, but once they did, they spent most of the rest of the week moving the same direction. Friday was no exception, but the fact that stocks were rising fairly quickly meant that bonds were under pressure as well. Friday’s losses aside, both mortgage backed securities (MBS) and Treasuries headed out at much stronger levels compared to the previous Friday.
Source: Matthew Graham, Mortgage News Daily 5/13/22)
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) The Talking Fed, (2) Retail Sales and (3) Treasury Dump.
(1) The Talking Fed: The narrative last week was several speakers (Bostic, Mester, et al) parroting Powell and talking down the potential for a 75 basis points increase at the next meeting and doubling down on the concept that a “neutral” Fed Fund rate is somehow magically in the 2.00 to 2.50 range. The bond market will be paying very close attention to this week’s speakers to see if the narrative continues. Here is this week’s schedule:
- 05/16: Williams
- 05/17: Powell, Harker, Mester and Evans
- 05/18: Harker
- 05/19: Barr
(2) Retail Sales: It was a record run up in the recent Consumer Credit report…does that translate to a big spike in spending? Or are consumers simply using credit cards to make ends meet? This is an important question for the economy and the markets. Tuesday’s Retail Sales report is the most important data point of the week.
(3) Treasury Dump: There were three strong Treasury auctions last week in terms of demand (bid to cover ratio) but only the 30-year bond auction had an impact on MBS pricing (pricing improved). This week is the 20-year bond auction which can certainly impact MBS pricing as well.
Market Wrap-up
Domestic Flavor
Manufacturing: The May Empire State (NY) Manufacturing Index shocked to the down side with a contractionary reading of -11.6 vs. estimates of +15.5.
On Deck for Tomorrow: Retail Sales, Industrial Production and Capacity Utilization, NAHB Housing Market Index.