What Happened Last Week?
Housing is Normalizing, Not Dying; Nice Rate Rebound
In 2020 and 2021, housing boomed and rates plummeted at a pace that many considered to be unsustainable. 2022’s role is to take things back in the other direction. In other words, things are “normalizing” after a period of frenzied movement. The normalization process can seem scary in cases where the thing being normalized was exceptionally big, different, and fast. It’s safe to say that housing demand, home prices and rates were all moving in a manner that could easily be described as big, different, and fast.
Continue reading: Matthew Graham, Mortgage News Daily 6/24/22)
What’s on the Agenda for this Week?
What would it take to see some improvement over and above last week’s small gain of +46BPS? Will it be an up or down week?
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Manufacturing.
(1) Inflation Nation: The Fed’s key measure of inflation, Core (Ex food and energy) PCE, will be issued on Thursday. While the YOY readings may show a reduced rate of acceleration (giving the Fed some cover), the bond market will focus on the rate of change on a MOM basis which is expected to increase by another 0.4% on top of the prior month’s gain of 0.3%. The headline PCE is expected to jump a whopping 0.7% on a MOM basis.
(2) The Talking Fed: Last week the markets shifted their expectations from a 75BPS hike to a 50BPS hike at the next FOMC meeting. The market are also expecting the Fed to stop rate hikes sooner and start rate reductions sooner due to expectations on how their actions will crush the economy and bring on stagflation. However, that concern may shift as we hear from Fed Chair Powell on Wednesday. Here is this week’s Fed schedule:
- 06/27: Dallas Fed MFG survey
- 06/28: Mary Daly
- 06/29: Loretta Mester, Fed Chair Powell
- 06/30: Fed Balance Sheet
(3) Manufacturing: Is the economy slowing? Experts have certainly seen mixed signals. Generally, it shows up in manufacturing first. So, the markets will pay close attention to this week’s manufacturing data:
- 06/27:P Durable Goods
- 06/28: Richmond Fed Manufacturing
- 06/30: Chicago PMI
- 07/01: ISM Manufacturing
Here is this week’s auction schedule:
- 06/27: Both 2-year and 5-year note auctions
- 06/28: 7-year note auction
Taking it to the House May Pending Home Sales Index was much better than expectations, rising 0.7% vs. estimates of -3.7%.
Manufacturing: May Durable Goods Orders were seven times better than expected (0.7% vs. estimates of 0.1%). Ex-transportation, they were up 0.7% vs. estimates of 0.3%.
On Deck for Tomorrow: Case Shiller Home Price Index, FHFA Housing Price Index, Richmond Fed Manufacturing and Consumer Confidence.
There were two shorter-term note auctions today. The 2-year note was $46B at a high yield of 3.084% and a bid-to-cover ratio of 2.51. The 5-year note auction was $47B at a high yield of 3.271% and a bid-to-cover ratio of 2.28