What Happened Last Week?
Logical Outcome for Bonds. Still Waiting on Data to Tell a New Story
The jobs report came in just slightly above expectations in terms of the payroll count and convincingly lower in terms of the unemployment rate. The data would have needed to be much weaker than expected to get even a small amount of attention from the Fed. Markets traded accordingly with rates making a measured move up to the highest levels of the week. Attention now turns to the Consumer Price Index (CPI) on Thursday for the next major dose of guidance.
Source: Matthew Graham, Mortgage News Daily 10/7/22)
What’s on the Agenda for this Week?
Overview
I hope you had a great holiday-extended weekend! There are a lot of headlines and releases that the bond market will be very sensitive to this week.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) Central Bank Palooza, and (3) The Talking Fed.
(1) Inflation Nation: There will be very key inflationary readings out of Producer Prices, Consumer Prices and Import and Export Prices. The markets are expecting the Core (ex food and energy) CPI YOY to rise from 6.3% to 6.5% but also expect the headline CPI to crest and drop from 8.3% to 8.1%. The higher these numbers are, the worse it is for MBS backend pricing.
(2) Central Bank Palooza: The Bank of England announced that it would widen the scope of its daily gilt purchase operations to include purchases of index-linked gilts. The IMF is meeting this week. The lender’s chief economist, Pierre-Olivier Gourinchas, wrote, “The worst is yet to come, and for many people 2023 will feel like a recession”. Also, the IMF lowered their global GDP forecast next year to only 2.7% which is the lowest level since 2009.
(3) The Talking Fed: Pivot? No Pivot? A Pivot to the Pivot? The bond market continues to try to hedge ahead of the next several FOMC meetings. There will be the Minutes from the last FOMC meeting on Wednesday.
Treasury Dump
Here is this week’s schedule, Thursday’s 30-year bond auction is the most important for MBS pricing:
- 10/11: 3-year note
- 10/12: 10-year note
- 10/13: 30-year bond
Market Wrap-up
Optimism?
The September NFIB Small Business Optimism increased from 91.8 to 92.1. The October IBD Economic Optimism dropped from 44.7 to 41.6.
Treasury Dump
The 3-year Treasury note auction was not a good one. $40B went off at a high yield of 4.318% (compared to 3.564% last month). The bid-to-cover ratio was 2.57.
On Deck for Tomorrow
Monthly Bond Coupon Rollover, Producer Price Index, 10 year Treasury Note Auction, Weekly Mortgage Applications, Atlanta Fed Business Inflation Expectations, FOMC Minutes.