What Happened Last Week?
Bond Market Resilience Suggests More Focus on CPI
Up until the 3pm close on Friday, the bond market was having a surprisingly resilient day relative to the market moving data. When NFP beats forecasts by 100k (Friday: 303k vs 200k forecast), there tend to be big losses. It was no surprise to see losses, but possibly surprising to see bonds almost back to pre-NFP levels 2 hours later. Even after the 3pm sell-off, MBS were still in line with Thursday morning’s levels. That’s better than had been expected, based on the data, and one of the only conclusions is that the market is more anxious to see this week’s CPI on Wednesday.
Source: Matthew Graham, Mortgage News Daily 4/5/2024)
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) The Talking Fed.
(1) Inflation Nation: There are three big reports this week that address inflation: CPI, PPI and Import Prices. It was a month ago that higher than expected readings in both CPI and PPI kicked off a round of worse pricing/higher mortgage rates. They are expected to continue to expand, it will take a surprise to the downside to see any real trend reversal.
(2) Central Bank Palooza: There will be important interest rate decisions and policy statements and speeches from several central banks this week with the spotlight on Thursday’s European Central Bank. The ECB had been considered (two meetings ago) to be on a path towards being the first Central Bank to start cutting rates right about now… however, that expectation has soured and experts will be looking for more forward guidance out of the ECB.
(3) The Talking Fed: One of the main sources of downward momentum in pricing over the past two weeks has been various Fed speeches that seem to support being “data dependent” and sticking to the 2% target rate and that the Fed’s rate landscape may only include 1 rate change this year instead of the 3 that are still priced in. This week will also focus on Fed Speak and will get the Minutes from the last FOMC meeting.
Treasury Dump
Thursday’s 30-year bond auction will be the most important of the week.
- 04/09: 3-year note.
- 04/10: 10-year note.
- 04/11: 30-year bond.
Market Wrap-up
Overview
There were no economic releases today.
The Talking Fed
Chicago Fed President Goolsbee said “You’ve got to pay attention to how long do you want to be that restrictive, if you’re there too long, the unemployment rate is going to start going up.”
On Deck for Tomorrow
NFIB Small Business Optimism Index, 3-year Treasury Note Auction.