What Happened Last Week?
Logical Reaction to Jobs Data, But Why The Mid-Day Bounce?
Nonfarm Payrolls (NFP), the headline component of the big jobs report, crushed even the most bullish forecasts (336k vs 170k median forecast). In a data dependent bond market, it was no surprise to see yields spike significantly and quickly. 10s hit 4.887 at the peak. It was a surprise, however, to see a fairly substantial mid-day Friday recovery that erased more than half of the AM losses. Unfortunately, that recovery is not attributable to any fundamental motivation in the economy or news headlines. Rather, it’s likely a byproduct of trading dynamics often seen on the Friday before a 3 day weekend.
Source: Matthew Graham, Mortgage News Daily 10/6/2023)
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) Geopolitical, (2) Inflation Nation and (3) The Talking Fed.
(1) Geopolitical: Israel/Hamas will take all of the oxygen out of the markets this week as further escalation will send oil prices through the roof as well as cause major economic disruptions.
(2) Inflation Nation: This week both Consumer and Producer prices indexes will be released. They are expected to fall on a YOY basis but still increase on a MOM basis. It’s that monthly incremental change that the bond markets will focus on the most.
(3) The Talking Fed: This is a big week for Fed speak. There will also be the Minutes from the last FOMC meeting where they stood pat on rates but pushed things out further in their Economic Projections.
- 10/10: Bostic, Waller, Kashkari and Daly
- 10/11: Atlanta Fed Business Inflation, Bowman, Waller, Bostic, Collins and the FOMC Minutes
- 10/12: Bostic, Collins
- 10/13: Harker
Treasury Dump
There will be a ton of debt dumped into the marketplace this week. Thursday’s 30-year bond auction is the most important.
- 10/10: 3-year note
- 10/11: 10-year note
- 10/12: 30-year bond
Market Wrap-Up
Optimism? The September NFIB Small Business Optimism Index cratered to 90.8.
The Talking Fed: Governor Waller said, “Price stability is a primary responsibility of the Federal Reserve, this is why we have taken forceful steps aimed at reducing inflation – and why we will stay on the job to achieve our objective.”
Treasury Dump: Three days of dumping debt into the marketplace kicked off with a 3-year note auction. $46B went off at a high yield of 4.740% and a bid-to-cover ratio of 2.56.
On Deck for Tomorrow: Monthly Bond Coupon Rollover, Weekly Mortgage Applications, PPI, Core PPI Atlanta Fed Reserve Inflation Expectations, 10 year Treasury Note auction, FOMC Minutes.