What Happened Last Week?
Huge Win Friday
Rates were arguably oversold heading into Friday’s jobs report, but certainly could have continued higher if NFP was much higher than expected. Thankfully, it wasn’t (187k vs 200k forecast, and a downward revision to last month). Still great numbers, but not enough to justify the defensive posture leading up to them. Bonds spent the rest of the trading session correcting that posture. Some of that correction could be short covering on a Friday. Some could be a legitimate attempt to get into a more nimble position ahead of this week’s CPI data. Experts will be cautious about assuming there will be too much more without additional supportive data.
Source: Matthew Graham, Mortgage News Daily 8/4/2023)
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) Inflation Nation, (2) Treasury Dump and (3) Across the Pond.
(1) Inflation Nation: Both CPI and PPI are this week, with the focus on CPI which is expected increase 0.2% on a MOM basis and 3.3% on a YOY basis, compared to the June’s reading of 3.0% YOY.
(2) Treasury Dump: One of last week’s main stories was the announcement from the Treasury department of a record amount of supply of our debt that will hit the market over the next three months. And now it begins. There will be 3-year notes and 10-year notes this week but the biggest focus for MBS traders will be Thursday’s auction of 30-year bonds.
(3) Across the Pond: Other than CPI and PPI, this is a fairly light week on our domestic calendar. Bond traders will take their cues from overseas data.
- China: CPI, PPI
- Japan: PPI
- Germany: CPI, 10-year Bund Auction
- Great Britain: GDP
Market Wrap-up
Domestic Flavor
Consumer Credit: The June Consumer Credit change was larger than expected, up $17.85B vs. estimates of $13B and a May pace of only $7.24B.
On Deck for Tomorrow: Trade Balance, 3-year Treasury note auction.