Weekly Mortgage Overview: 6/6/2022

What Happened Last Week?

Why Bonds Reacted to Such a Small Beat in The Jobs Data

In Friday’s jobs report, headline payrolls came in at 390k vs 325k forecast, average hourly earnings dropped, and unemployment ticked up. It would be hard to argue that this was an exceptionally strong result. In fact, one could make the case it was somewhat lackluster. But bonds sold-off as if the data provided some bullish economic surprise. The selling is actually hard to justify based on the numbers above. One of the only ways to do it would be to point out that traders (the people who move markets) were braced for weaker numbers than economists (the people responsible for the 325k) forecast. In other words, the market was surprised to see something decent.
Source: Matthew Graham, Mortgage News Daily 6/3/22)

What’s on the Agenda for this Week?

Overview

Two weeks ago, mortgage backed securities (MBS) gained +55BPS, last week MBS lost -57BPS. What are experts expecting for this week?

Three Things

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

(1) Inflation Nation: The focus this week will be on Friday’s Consumer Price Index (CPI). The headline number is expected to rise another 0.7% and Core another 0.5%. However, YOY the rates are expected to moderate below their 40-year peak highs due to the time period comparison vs. 12 months ago.

(2) Central Bank Palooza: Another rate hike is expected out of Australia but the focus will be on Thursday’s ECB Meeting as they struggle to address runaway inflation that they have been fueling with their zero interest rate policy for years.

(3) Treasury Dump: There has been blockbuster demand for shorter-term note auctions (2-, 5- and 7-year notes). This week will be auctions for the 3-year note and 10-year note. Those are chapters in the same book as the prior note auctions. But Thursday’s 30-year bond auction is a different book completely. There has not been any material reaction in MBS pricing to the note auctions but there has been some real volatility after the 20-year and 30-year long bond auctions.

Market Wrap-up

Overview

There were no events today.

On Deck for Tomorrow

Reserve Bank of Australia Interest Rate Decision, U.S. Trade Balance, 3-year Treasury note auction, Consumer Credit Change.