What Happened Last Week?
Still Not Reading Too Much into the Week’s Weakness
Friday began with bonds reacting negatively to economic data that didn’t seem to justify too much weakness. The thesis is that, while we can come up with a few explanations to fit the movement, none of them really matter in the bigger picture. The market has yet to truly make its next move after rallying in response to November’s CPI report. The weakness we’re seeing could be an incidental byproduct of light holiday week volume and liquidity, or it could be a “lucky guess” among traders who think the correction from October rate highs has run enough of its course for now. Either way, we won’t be able to know until January.
Source: Matthew Graham, Mortgage News Daily 12/23/22)
What’s on the Agenda for this Week?
Overview
I hope you had a fantastic Christmas! Mortgage backed securities (MBS) are down (worse pricing) this morning. What is expected for the week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Rosie the Riveter, (2) Jobs, Jobs, Jobs and (3) End of Year.
(1) Rosie the Riveter: Will our manufacturing recession continue fall deeper into the hole? This week will be key readings from Chicago PMI and the Richmond Fed.
(2) Jobs, Jobs, Jobs: Initial Jobless Claims will take center stage this week as a precursor to next week’s big jobs Friday.
(3) End of Year: This is a fairly light week for economic data, kind of a pause between last week’s PCE and next week’s Jobs data. Bonds will be reactive to positioning due to end of year goals by major traders.
Treasury Dump
There are three auctions this week.
- 12/27: 2-year note
- 12/28: 5-year note
- 12/29: 7-year note
Market Wrap-up
Domestic Flavor
Taking it the House: October Case Shiller Home Price Indices showed a YOY increase of 8.6% but that is a pace that is much lower than September’s pace of 10.4% and below the estimates of 9.7%. The more inclusive FHFA Housing Price Index showed a MOM net change of 0.0% vs. estimates of 0.8%.
Rosie the Riveter: The regional Dallas Fed Manufacturing Business Index was dismal at -18.8 which is a further decline from November’s pace of -14.4.
Treasury Dump
The 2-year Treasury note auction was very solid with $42B going off at a high yield of 4.373%, the bid-to-cover ratio of 2.71.
On Deck for Tomorrow
Pending Home Sales, Richmond Fed Manufacturing, 5 year Treasury note auction.