What Happened Last Week?
Simple, Boring, Half Point Rally in MBS
There won’t be too many days with a half point mortgage backed securities (MBS) rally that are as boring as Friday. None of the economic data was very interesting or even exceptionally relevant. Most of the day’s motivation was set in the overnight session by a big move lower in European bank stocks and a sympathetic rally in sovereign debt. Treasuries were, in turn, sympathetic to EU bonds and MBS expressed some sympathy for Treasuries.
Source: Matthew Graham, Mortgage News Daily 3/17/23)
What’s on the Agenda for this Week?
Overview
Obviously, this is a very important week for MBS near-term pricing trends. How will the bond market react to various FOMC scenarios?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Running Man, (2) The Talking Fed and (3) Central Bank Palooza.
(1) The Running Man: The run on the banking system has been a huge factor in pricing over the past two weeks. This week starts off with the news that Credit Suisse will be bought by UBS and supported by financing via the SNB. But will this be enough to stabilize the banking system in Europe? And don’t forget we have our own issues in the U.S. with continued fallout from SVB, Signature, First Republic and more.
(2) The Talking Fed: The Federal Reserve will issue their latest interest rate decision and policy statement on Wednesday. The bond market is effectively split between the FOMC electing to pause (no rate hike) due to the recent bank mini-crisis or raise 25BPS and signal that they will remain at that level for some time. The answer to the second part of that will come in the form of the FOMC Economic Projections, which the bond market will look at for forward guidance on the pace of future hikes and the “terminal” rate which is the max rate before the Fed pivots towards lowering rates in the future.
(3) Central Bank Palooza: There will be key interest rate decisions out of the Bank of England and The Swiss National Bank.
Treasury Dump
There is an important 20-year bond auction on Tuesday.
Market Wrap-up
Overview
There were no economic events today.
On Deck for Tomorrow
FOMC starts two days of meetings, Existing Home Sales and a 20-year Treasury bond auction.