What Happened Last Week?
Bonds Rally on Month-End Trading and Friendly Inflation Data
Bonds began Friday in unchanged territory and made cautious gains after reasonably friendly inflation data. PCE was a bigger factor than the Consumer Sentiment inflation expectations, but both contributed. Given our position on the calendar, we should also consider the impact of month/quarter-end positioning. It would help account for some of this week’s resilience in US bond markets relative to the suggestion of equities markets or EU bonds.
Source: Matthew Graham, Mortgage News Daily 3/31/23)
What’s on the Agenda for this Week?
Overview
The bond market will close early on Friday in observance of Good Friday/Easter.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs. (2) The Talking Fed and (3) Across the Pond.
(1) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week that culminates in Big Jobs Friday. The overall strength of the labor market along with wage pressures (or lack thereof) can have a very large impact on backend pricing.
(2) The Talking Fed: The long bond market will continue to focus heavily on the Federal Reserve and their rate hike path and will continue to hedge based upon those expectations. This week Bullard, Cook and Mester will speak.
(3) Across the Pond: Concern over the European banking crisis, OPEC, and interest rate decisions from Australia and New Zealand will be in focus.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The March ISM Manufacturing PMI contracted for the 5th straight month and hit levels not seen since the height of the pandemic-driven slowdown. The headline reading was a miss at 44.3 vs. estimates of 44.6. The manufacturing index dropped to 46.9 and new orders fell to 44.3.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, Factory Orders and JOLTS.