What Happened Last Week?
Bonds Recovered Somewhat After Weaker Start
Position squaring and ongoing weakness in EU bond markets got US bonds off to a weaker start Friday. Lower-than-expected PMI data at 9:45am ET helped turn the tide. It also emphasized the role of economic data in the road ahead AND the role of “holiday light” trading conditions which can amplify the effects of market movers that otherwise might not move markets quite as much. By the end of the day, MBS were just barely weaker day-over-day, and 10-year yields were up less than 4bps to 3.49 after being as high as 3.56 intraday. From here, we’re not planning on reading anything into any movement that occurs in a 3.42-3.62 range and will generally not consider the bond market to be back at full strength until the 2nd week of January.
Source: Matthew Graham, Mortgage News Daily 12/16/22)
What’s on the Agenda for this Week?
Overview
The bond market will close early on Friday but there is a ton of big name economic releases that will hit before then.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) The Consumer and (3) Central Bank Palooza.
(1) Inflation Nation: On Friday will be the Fed’s key measure of inflation, Personal Consumption Expenditures (PCE). Both headline PCE and Core (ex food and energy) are expected to show monthly increases. However, the YOY readings are expected to move lower due to the time frame comparison.
(2) The Consumer will take center stage to see if they can weather higher rates, higher prices and an economic slowdown all at the same time. This week will be Consumer Confidence, Consumer Sentiment and Personal Incomes and Personal Spending.
(3) Central Bank Palooza: This week will be interest decisions out of China and Japan.
Treasury Dump
There is a very important 20-year bond auction this week.
Market Wrap-up
Domestic Flavor
Taking it to the House: NAHB sentiment tumbled to the lowest level since June 2012 excluding the onset of the Covid-19 lockdowns. The headline NAHB index dropped 2 points to 31 (after being expected to rise to 34) and is now down 12 straight months, which represents the longest losing streak on record.
On Deck for Tomorrow Housing Starts and Building Permits.
Central Bank Palooza
Peoples Bank of China Rate Decision, Bank of Japan Rate Decision.