What Happened Last Week?
Bonds Keep Fading; Cue the CPI Anxiety
Friday morning’s headline was “if bonds aren’t rallying, they’re selling.” It could just as easily have been the recap for the week. In general, the entire week was defined by capitulation as traders came to terms with the previous week’s jobs report and the Fed’s persistent messaging. While it’s true that Friday’s inflation expectation component of the Consumer Sentiment data may have greased the skids for more weakness, it probably didn’t have a material impact on where the week ended up. The several failed attempts to close below 3.62% in 10-year yields meant that there would need to be an unexpectedly friendly CPI report this Tuesday to restore the range. That said, bonds seem more content to worry about unexpectedly unfriendly data until it can be ruled out.
Source: Matthew Graham, Mortgage News Daily 2/10/23)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Domestic Flavor.
(1) Inflation Nation: The very anticipated CPI report will be issued on Tuesday. This report is key as it will reflect the new weighting and methodology for the new CPI calculations. This will result in a big YOY drop but a large MOM gain. December has already been revised upward from its original release due to the new formula. PPI will be this week as well.
(2) The Talking Fed: Last week there was a collective effort from all of the Fed speakers to move the markets towards expecting more hikes and “higher for longer”. It worked, as MBS sold off as a result. This week, Bowman, Williams, Cook and Mester will speak.
(3) Domestic Flavor: There will be some heady economic data this week which include Retail Sales and a lot of manufacturing news with regional Philly Fed, Empire Manufacturing and Industrial Production and Capacity Utilization.