What Happened Last Week?
ISM and NFP Team Up To Send Rates Sharply Lower
Bonds got off to a strong start Friday when the wage component of the nonfarm payrolls (NFP) came in weaker than expected with a big downward revision to last month’s balmy number. Given Powell’s recent comments on wages, a moderate rally wasn’t a surprise. The surprisingly large rally didn’t get underway until after the 10am ISM services data, which abruptly dropped into recessionary territory.
Source: Matthew Graham, Mortgage News Daily 1/6/23)
What’s on the Agenda for this Week?
Overview
Mortgage backed securities (MBS) pricing improved last week and the odds are that there could be further improvement this week.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Inflation Nation and (3) Treasury Dump.
(1) The Talking Fed: Last week’s Minutes made it clear that the Fed is frustrated that the markets are NOT buying their message (and are actually hedging against it). There will be a ton of speeches this week and it will be interesting to see if the collective message remains the same or if there starts to be some cracks in their resolve. Here is a schedule for this week:
- 01/09: Bostic
- 01/10: Fed Chair Powell
- 01/11: Atlanta Fed Business Inflation Expectations
- 01/12: Harker, Bullard, Barkin and the Fed’s Balance Sheet
(2) Inflation Nation: On Thursday will be the most important economic release of the week with the Consumer Price Index. Market Expectations are that there will actually be a decrease in the headline MOM reading. The weaker this data is, the better it is for pricing. Import/Export Prices will be on Friday, which is also an inflationary data point.
(3) Treasury Dump: The following is this week’s schedule, with Thursday’s 30-year bond auction being the most important of the week for MBS backend pricing.
- 01/10: 3-year note
- 01/11: 10-year note
- 01/12: 30-year bond
Market Wrap-up
Domestic Flavor
Consumer Credit: The November reading increased slightly to $27.96 billion, which beat forecasts of a drop to $25 billion. According to the Fed, the November increase in credit card debt was a whopping $16.5 billion, more than 60% higher than October’s $10 billion, and also the 4th highest monthly print this century, with just March 22, April 22, and August 22 modestly higher.
The Fed
The Talking Fed: The New York Fed survey of consumers’ inflation expectations showed a reduction, as the median 1-year dropped from 5.23% to 4.99%. The 3-year inflation expectations dropped from 3.00% to 2.99%. The 5-year horizon increased from 2.32% to 2.42%. Atlanta Fed President Raphael Bostic said the central bank should raise interest rates above 5% by early in the second quarter and then go on hold for “a long time.”
On Deck for Tomorrow: 3-year Treasury note auction, Fed Chair Powell.