What Happened Last Week?
Even When It’s Good, It’s Bad
Bonds had a good overnight session Thursday night with fairly steady gains in both Asia and Europe. Friday morning was shaping up nicely and, up until 9:30am, it looked like bonds might squeak by with a bit of a victory on the day. But as is so often the case recently, even the good days seem to find a way of turning bad. Friday was no exception. A big reversal in UK trading got the party started for sellers, with the Consumer Sentiment data adding fuel to the fire. Fed speakers frosted the cake with new versions of the same old ideas. Bonds did a good job of leveling off in the afternoon, but not before 10-year yields were back above 4.0% and MBS down half a point.
Source: Matthew Graham, Mortgage News Daily 10/14/22)
What’s on the Agenda for this Week?
Overview
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) The Talking Fed, (2) Across the Pond and (3) Rosie the Riveter. (1) The Talking Fed: The Fed’s Beige Book will be issued on Wednesday which is prepared specifically to be used in the next FOMC meeting. There will also be a last barrage of Fed speeches before the media “blackout” period starts on Monday. The MBS market is assuming a 75BPS hike at their next meeting but experts are focusing on direction on their QT and possible MBS sales as they mentioned it for the first time in last week’s Minutes. (2) Across the Pond: One of the biggest forces of volatility in the bond market over the past two weeks has been out of Great Britain. It appears that they cleaned house and have one consistent message now. Bank of England Governor Baily says the BofE will be forced to move “more aggressively” than they thought at their August meeting and Truss’s administration has done a complete U-Turn on their fiscal policy to align with the BofE. Dismal data continues to come out of China and, in fact, they cancelled a key economic report that was supposed to be released tomorrow. Europe is on deck with their expected rate hike at their next meeting. (3) Rosie the Riveter: There is a lot of Manufacturing related data this week with Empire Manufacturing, Industrial Production and Capacity Utilization, Philly Fed and some other region reports. Leading into the Fed meeting, this data is key to gauge economic growth (or lack thereof). Manufacturing: The October Empire State Manufacturing Survey from the Fed Reserve district of NY was in recessionary territory with a further contraction of -9.1 vs. estimates of -4.0. On Deck for Tomorrow: Industrial Production and Capacity Utilization, NAHB Housing Market Index.Three Things
Market Wrap-up
Domestic Flavor