What Happened Last Week?
Moderate, Inconsequential Weakness
Bonds lost ground at a modest to moderate clip on Friday, but not for any interesting or obvious reasons. The selling had been very linear over the previous 2 trading days with Treasury yields fitting neatly inside a simple trend channel. There is perhaps some small case to be made for excess weakness in European bonds spilling over the US bond market that has nothing better to do and no compelling motivations of its own. In the bigger picture, anything that takes place between 10-year yields of 4.34 and 4.50 would be considered very range-bound and that range might not be meaningfully challenged until the first week or two of June.
Source: Matthew Graham, Mortgage News Daily 5/17/2024)
What’s on the Agenda for This Week?
Overview
This holiday-shortened week will have very little economic data to drive pricing.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Treasury Dump and (3) Geopolitical
(1) The Talking Fed: There is a huge amount of scheduled speeches this week. The bond market will be very keen to see if there is any change in tone after last week’s round of inflation and Retail Sales data.
- 05/20: Bostic, Barr, Waller, Jefferson
- 05/21: Barkin, Waller, Williams, Bostic, Barr
- 05/22: FOMC Minutes, Atlanta Fed Business Inflation Expectations
- 05/23: Bostic
- 05/24: Williams
(2) Treasury Dump: There is an important 20-year Treasury Bond auction on Wednesday that has a very strong correlation to MBS backend pricing.
(3) Geopolitical: With the lack of meaningful major domestic economic data this week, geopolitical issues such as the death of Iran’s President, Israel/Hamas, etc., will drive bond yields.
Market Wrap-up
The Talking Fed
Vice Chair Jefferson said, “It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting, the better reading for April is encouraging.” Meanwhile, Vice Chair Barr focused on his concerns over liquidity and long-term debts and pending reforms that address how the Fed and banking system handle that. Atlanta Fed President Bostic is still in the camp that Fed policy is restrictive and it’s too early to start to cut and still sees only one cut this year.
Central Bank Palooza
The People’s Bank of China kept their key interest rate at 3.45% which was widely expected.
On Deck for Tomorrow
No economic data; Fed Speakers: Waller, Williams and Barr.