What Happened Last Week?
Rates Defeated by Data
This week’s recap is fairly straightforward. Rates were at the bottom of what was probably going to turn out to be a sideways range. Economic data was strong enough to remove any doubt of that range being broken. ISM on Wednesday and Jobs on Friday took turns pushing bond yields back up into the middle of June’s exceptionally wide range. 10s ultimately moved up to 3.08+ and mortgage backed securities (MBS) lost the better part of a point from the previous Friday. It’s hard to say exactly how much credit to give data versus technicals, but it’s very easy to say that this week’s CPI data will be the next major focal point for rate momentum.
Source: Matthew Graham, Mortgage News Daily 7/8/22)
What’s on the Agenda for this 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) Domestic Flavor.
(1) Inflation Nation: The last barrage of inflationary data is this week leading into the next FOMC meeting this month with CPI, PPI and Import Prices.
(2) The Talking Fed: Last week, the bond market tilted back to expectations of a 75BPS rate hike but that certainly can change again. This week will be the Fed’s Beige Book and speeches from John Williams, Thomas Barkin, and Raphel Bostic. Their Balance Sheet will be issued on Thursday. This week they will also make some key MBS purchases:
- 07/11: 30-year MBS
- 07/12: 30-year GNMA
- 07/13: 3- year MBS
- 07/14: 30-year GNMA
(3) Domestic Flavor: Of the economic data this week, Retail Sales and Consumer Sentiment will garner the most attention among bond traders.
Central Bank Palooza
Key interest rate decisions from the Bank of Canada and New Zealand are this week.
Here is this week’s Treasury auction schedule:
- 07/11: 3-year note
- 07/12: 10-year note
- 07/13: 30-year bond
The Federal Reserve Bank of New York purchased $922M of 30Y MBS today:
- 4.0 coupon $186M
- 4.5 coupon $531M
- 5.0 coupon $296M
Treasury Dump: Today kicked off three straight days of dumping our debt into the market place with our shorter term 3-year note auction. $43B went off at a high yield of 3.093%. The bid-to-cover ratio was 2.43.
On Deck for Tomorrow: 10-year note auction, Fed purchase GNMA MBS.