What Happened Last Week?
Rates Seen Staying Higher For Longer. Blame Canada?
In a surprising turn of events, last week’s biggest market mover for interest rates was a policy announcement by the Bank of Canada (BOC). The event was credited for prompting a re-think of the US Federal Reserve’s rate outlook. Specifically, the BOC hiked rates despite about half the market believing it would hold steady. While the odds that the Fed holds steady at this Wednesday’s announcement are quite a bit better, the argument last week was that central banks might err on the side of tough love as opposed trusting that inflation would subside.
Source: Matthew Graham, Mortgage News Daily 6/9/2023)
What’s on the Agenda for this Week?
Overview
This is a very pivotal week and MBS could really breakout above or below the recent channel as a result.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Central Bank Palooza and (3)Inflation Nation.
(1) The Talking Fed: On Wednesday, our Federal Reserve will issue the latest Interest Rate Decision and Policy Statement. At present, the majority of the consensus estimates are for the Fed to “pause” at this meeting; however, there is some room for them to move. They will also issue their Summary of Economic Projections. This will carry a lot of weight as well as this is where their “dot plot” chart is derived and the bond market will be very sensitive to forward guidance of interest rates, inflation, GDP and jobs. After all of that, there will be a live presser with Fed Chair Powell.
(2) Central Bank Palooza: Our Fed is not the only Central Bank this week. There will also be interest rate decisions from European Central Bank and the Bank of Japan.
(3) Inflation Nation: CPI and PPI will be this week. CPI will hit on Tuesday which is when the FOMC starts their meetings. The hotter this data set is, the worse it will be for pricing and may even tip the Fed to raise rates. Conversely, the weaker this data is, it could seal the deal for the Fed to pause.
Treasury Dump
Here is this week’s Treasury auction schedule:
- 06/12: 3-year and 10-year notes
- 06/13: 30-year bond
Market Wrap-up
Treasury Dump
There were two auctions today. The 3-year note saw $40B go off at a high yield of 4.202% and a bid-to-cover ratio of 2.70. The 10-year note saw $32B go off at a high yield of 3.791% and a bid-to-cover ratio of 2.36.
On Deck for Tomorrow
Consumer Price Index, 30 year bond auction, FOMC begins two days of meetings.