What Happened Last Week?
Strong Friday for Bonds Helps Keep Sideways Vibes Intact
Friday ended up being surprisingly strong for the bond market with the best rally of the week in the long end of the yield curve. European bonds were a key consideration early, but the quarterly rollover in Treasury futures probably added some emphasis to the gains. 10-year Treasuries fully erased the sharper losses seen Wednesday and Thursday. Unfortunately, those sharper losses happened to be threatening the technical ceiling at 4.32%, so Friday’s rally is best described as merely keeping the broader sideways vibes intact.
Source: Matthew Graham, Mortgage News Daily 2/23/2024)
What’s on the Agenda for this Week?
Overview
Unlike last week that had a very light economic calendar, this week is packed!
Four Things
The areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) Treasury Dump, (3) The Talking Fed, and (4) Rosie the Riveter.
(1) Inflation Nation: The Fed’s key measure of inflation, Core PCE will be issued on Thursday. It is expected to grow at MOM pace of 0.4% which is double the prior month’s pace. Yet, YOY it is expected to move from 2.9% to 2.8%.
(2) Treasury Dump: A record 2s, 5s and 7 year notes hit the market this week. It is a massive amount of debt that needs to be absorbed into the marketplace. While there appears to be plenty of cash on the sidelines to take this offering, it will be an important week for bonds.
(3) The Talking Fed: The Fed’s March meeting is fast approaching and their media blackout period leading up to that meeting even quicker. This week’s barrage of speakers will get a lot of weight, particularly after the PCE data hits:
- 02/26: Schmid
- 02/27: Barr
- 02/28: Bostic, Collins, Williams
- 02/29: Bostic, Goolsbee, Mester
- 03/01: Waller, Bostic, Daly, Kugler
(4) Rosie the Riveter: There is a lot of heady manufacturing related data this week with ISM Manufacturing, Chicago PMI, Durable Goods, Dallas Fed Manufacturing and Richmond Fed Manufacturing.
Market Wrap-up
Domestic Flavor
Taking to the House: January New Home Sales were 661K units on an annualized adjusted basis vs estimates of 685K. December was revised lower to 651K.
Rosie the Riveter: The Federal Reserve’s Dallas district’s manufacturing survey continued to show contraction, down 11.3 for the General Activity Index but the Production Index surprised to the upside with a small gain of 1.0%.
Treasury Dump: There were two Treasury auctions today and both were at record increments. The 5Y note auction saw $64B go off at a high yield of 4.320% and a bid-to-cover ratio of 2.41. The 2Y note auction had $63B go off at a high yield of 4.691% and a bid-to-cover ratio of 2.49.
On Deck for Tomorrow: Durable Goods Orders, Case Shiller HPI, FHFA House Price Index, Consumer Confidence, Richmond Manufacturing Index, 7YR Note auction.