What Happened Last Week?
Uneventful Friday, Thoughts Turning to CPI
Apart from the fact that 10-year Treasury yields are about 25bps higher than they were before the previous Friday’s jobs report, it was an uneventful week for the bond market with only one or two exceptions. The first exception was the exceptionally large amount of corporate bonds that hit the market in the first half of the week. The result was fairly constant upward pressure in rates for no other apparent reason. The second was Wednesday’s ISM Services data which added to the upward pressure. Thursday marked a technical correction/recovery and Friday ended up being entirely superfluous. Thoughts are already turning to this week’s CPI which occurs one week before a fairly important Fed meeting. Volatility potential would be high anyway, but doubly so in this case as the Fed is in the blackout period ahead of its meeting, thus allowing the market’s imagination to run wilder than normal.
Source: Matthew Graham, Mortgage News Daily 9/8/2023)
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) Central Bank Palooza and (3) Treasury Dump.
(1) Inflation Nation: There will be two key inflation data points this week with CPI and PPI, with CPI getting the most attention from bond traders. The headline CPI is expected to rise at a pretty high clip (due to spike in oil/energy prices). Core CPI (ex food and energy) is expected to expand at a more moderate pace on a MOM basis and move lower on a YOY basis.
(2) Central Bank Palooza: The European Central Bank will give their latest Interest Rate Decision and Policy Statement on Thursday.
(3) Treasury Dump: The most important auction this week for MBS backend pricing is Wednesday’s 30-year bond auction:
- 09/11 3 year note
- 09/12 10 year note
- 09/13 30 year bond
Market Wrap-up
Treasury Dump
Three days of dumping debt into the marketplace kicked off with the shorter term 3-year note. $44B went off at a high yield of 4.660% and a bid-to-cover ratio of 2.75. This auction saw the fewest foreign buyers since October 2022.
On Deck for Tomorrow: 10-year Treasury note auction.