What Happened Last Week?
There are two ways to look at Friday’s weakness in the bond market. On one hand, yields did a great job of holding underneath the 4.34% technical ceiling in 10-year yields despite multiple bounces. On the other hand, 10-year yields moved quickly up to the 4.34% ceiling and attacked it multiple times. The first scenario is an optimistic defense. The second scenario could be viewed as “staging” for a breakout. Traders likely haven’t determined which scenario they’ll support and are instead waiting to see the lay of the land after this week’s Fed events.
Source: Matthew Graham, Mortgage News Daily 9/15/2023)
What’s on the Agenda for this Week?
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) Texas Tea, Black Gold.
(1) The Talking Fed: On Wednesday the Fed will issue their latest interest rate decision and policy statement. The markets are not currently pricing in a rate hike at this meeting. However, there could be a lot of volatility in response to their Economic Projections.
(2) Central Bank Palooza: The People’s Bank of China and the Bank of England will issue their key interest rate decisions. The BofE is the one central bank that is expected to continue to press higher with their rates and guidance.
(3) Texas Tea, Black Gold: Oil Prices are a major factor in inflationary input and have been on a tear upward in September. Increased pressure higher will be negative for pricing while a reversal in oil prices (a large drop lower) will be helpful in MBS pricing.
Taking it to the House:
The September NAHB Housing Market Index cratered down to a contractionary reading of 45 versus estimates of 50. MOM rose by 0.5% versus estimates of 0.3% and Export Prices increased by 1.3% versus estimates of 0.3%.
On Deck for Tomorrow
Housing Starts and Building Permits, 20-year bond auction and the start of two days of FOMC meetings.