What Happened Last Week?
Minimal Holiday Week Volatility
Cash bond trading closed at 2pm ET on Friday. Data coincided with brief, modest volatility in the morning, but it only lasted for 30 minutes. After that, bonds have been and will continue to be at the mercy of late December trading motivations which tend to create random, illiquid, low-volume movement that defies any of the typical reaction functions. In other words, whatever is seen on the screen could be considered noise ahead of cleaner signals in early January.
Source: Matthew Graham, Mortgage News Daily 12/22/2023)
What’s on the Agenda for this Week?
Overview
This is a holiday shortened week.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) Rosie the Riveter and (3) Treasury Dump.
(1) Geopolitical: Concern over the U.S. retaliatory strikes in Iraq and continued concern over the Red Sea, Gaza, Russia and more will be on top of minds of bond traders this week with limited economic news to drive markets.
(2) Rosie the Riveter: The bellwether Chicago PMI is this week along with the Richmond Fed Manufacturing Index.
(3) Treasury Dump: There is one last batch of debt to dump into the marketplace before the year ends. Demand for our debt will be a large factor in pricing.
- 12/26: 2-year note
- 12/27: 5-year note
- 12/28: 7-year note
Market Wrap-up
Domestic Flavor
Taking it to the House: The October 20 Metro City Case Shiller YOY index showed annual price increases of 0.6% which matched forecasts. The October FHFA MOM Housing Price Index showed a monthly gain of 0.3% in home prices which was less than the expectations of 0.5%.
On Deck for Tomorrow: Weekly Mortgage Applications, Richmond Fed MFG Index and a 5-year note auction.
Treasury Dump
Three days of dumping debt into the marketplace kicked off with a very solid 2-year note auction. $57B went off at a high yield of 4.314% and a bid-to-cover ratio of 2.68.