What Happened Last Week?
Higher Inflation Expectations Keep Yields Range-Bound
It’s not as if bond yields stood any real chance of breaking outside the week’s prevailing range based on Friday’s starting point, but by losing a modest amount of ground, they ended up staying even closer to the 4.50% psychological level ahead of this week’s big CPI revelation. Friday’s driver was the Consumer Sentiment data. While the headline was weak (which would be good for bonds, all other things being equal), the inflation expectation component got the market’s attention, pushing yields higher and stocks lower after 10am. The selling was brief and the afternoon was on cruise control at modestly weaker levels
Source: Matthew Graham, Mortgage News Daily 5/10/2024)
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) Retail Sales and (3) The Talking Fed.
(1) Inflation Nation: Both PPI and CPI will be this week with CPI getting more weight among bond traders. However, it’s really about which data set has the biggest deviation from market expectations. CPI is expected to increase on a MOM basis; the larger the increase, the worse it will be for pricing. However, if there is a miss to the downside, MBS will rally.
(2) Retail Sales: Retail Sales will be on Wednesday. Last week’s Consumer Credit Report showed a much smaller than expected increase in revolving debt; however, it was at the highest debt level carried by consumers ever.
(3) The Talking Fed: Here is this week’s schedule:
- 05/13: Mester
- 05/14: Powell
- 05/15: Kashkari
- 05/16: Harker, Mester, Bostic
Market Wrap-up
The Talking Fed
The April New York Fed’s Survey of Consumer Expectations showed inflation expectations rising from 3.0% to 3.3% on a 12-month basis and from 2.6% to 2.8% on a 5-year outlook.
On Deck for Tomorrow
Producer Price Index and Core Producer Price Index, Fed Chair Powell Speaks.