What Happened Last Week?
Bonds Diverge Over Data Implications
It was a consistently bad week for the bond market and Friday morning’s data offered little objection. But the damage is playing out in an uneven way with shorter term yields moving higher much faster than long term yields. This is to be expected to a large extent due to Fed rate expectations’ stronger correlation with shorter-term yields (MBS are somewhere in the middle). As such, 10-year yields managed a fairly flat day despite higher PCE inflation, and 2-year yields were up 6+bps.
Source: Matthew Graham, Mortgage News Daily 5/26/2023)
What’s on the Agenda for this Week?
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) Debt Ceiling.
(1) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week. The stronger it is…the worse it will be for pricing and of course, vice versa: JOLTS, ADP, Challenger Job Cuts, Initial Weekly Jobless Claims, ISM data, Non Farm Payrolls, Unemployment Rate, U6 Underemployment Rate, Average Hourly Earnings.
(2) The Talking Fed: This will be another full week of Fed speak before their media blackout period that precedes their June FOMC meeting.
- 05/30: Barkin
- 05/31: Collins, Harker, Jefferson and the Beige Book
- 06/01: Harker
(3) Debt Ceiling: The week starts with press conferences claiming to have found enough common ground for an agreement. However, it is still going to be a tough slog to get enough votes to get it through.
Market Wrap-up
Domestic Flavor
Taking it to the House: The March FHFA Housing Price Index showed a MOM gain of 0.6% which was much stronger than expected 0.2%. The March Case Shiller Metro City Index showed a YOY contraction of -1.1% which is the first negative reading in years. The market was expecting -1.6%.
Consumer Confidence: The May Consumer Confidence data was very low but did beat out estimates, 102.3 vs. estimates of 100.0 but was a drop from April’s revised 103.7. The 12-month inflation expectations were very high at 6.1% which is down one tenth from last month.
Rosie the Riveter: The Dallas Fed’s Manufacturing Index dropped for the 13th consecutive month and dropped from -23.4 to -29.1 (vs. -18.0 expected).
On Deck for Tomorrow: Weekly Mortgage Applications, Chicago PMI, JOLTS and the Fed’s Beige Book
The Talking Fed
Richmond Fed President Barkin said that “Inflation is going to be more stubborn than many people would hope” and said that “There is a lot of uncertainty of where rates need to go,” though he called the current level “restrictive.”