What Happened Last Week?
Traders Turning Attention to December 13th Already
‘Tis the season for the bond market to enter holiday trading patterns and that fact was on full display Friday. Volumes were much lower than the rest of the week and traders made for the exits immediately after European markets closed, squaring positions to avoid risk exposure heading into the notoriously illiquid Thanksgiving work week. There were two economic reports out at 10am, but neither had an impact. Mortgage backed securities (MBS) managed to hold sideways for most of the afternoon with just under a quarter point of weakness on the day (downright small by recent standards). In the bigger picture, traders wish they could hit the fast forward button to Dec 13/14 (CPI and Fed day). No one’s really sure what to do between now and then.
Source: Matthew Graham, Mortgage News Daily 11/18/22)
What’s on the Agenda for this Week?
Overview
This is a holiday shortened week with Wednesday seeing a lot of volatility.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Central Bank Palooza, (2) The Talking Fed and (3) Domestic Flavor.
(1) Central Bank Palooza: There will be key interest rate decisions from China and New Zealand. New Zealand is expected to raise their rate by 75BPS.
(2) The Talking Fed: There was a mixed bag last week with very hawkish, moderate and dovish tones from different speakers. This week will be the minutes from the last FOMC meeting on Wednesday where the Fed raised interest rates by 75BPS. There will also be speeches from Mester, Daly And Bullard.
(3) Domestic Flavor: Basically all economic data will be issued on Wednesday. Initial Jobless Claims will get a lot of focus to see if all of these tech firings (Twitter, Meta and Amazon) start to show up. Consumer Sentiment is expected to remain at the anemic preliminary level of 54.7 and Durable Goods will get a good look from traders as well.
Treasury Dump
There are three auctions this week with Tuesday’s 7 year getting the most attention from the MBS side:
- 11/21: 2-year and 5-year auctions
- 11/22: 7-year note auction
Market Wrap-up
Domestic Flavor
Treasury Dump: There were two auctions today. The 2-year note was for $42B and went off at a high yield of 4.505% and had a bid-to-cover ratio of 2.64. The 5-year note was for $43B and went off at a high yield of 3.974% and a bid-to-cover ratio of 2.39.
On Deck for Tomorrow: Richmond Fed Manufacturing Index, 7-year Treasury note auction.
Central Bank Palooza
The People’s Bank of China kept their key interest rate at 3.65%.