What Happened Last Week?
The 11-Day Weekend is Now Official
If there was one objective hurdle to clear in order to consider last week completely uneventful in terms of big picture rate momentum, it would have been that the 10-year Treasury yield hold inside the 4.34-4.50 range. Thanks to Friday’s friendly revision in consumer inflation expectations, the hurdle was cleared without a millimeter to spare. With that, these business days plus the adjacent weekend days add up to 11 uneventful days for the bond market. This week isn’t much better in terms of big ticket data, but Friday’s PCE price index is a notable exception.
Source: Matthew Graham, Mortgage News Daily 5/24/2024)
What’s on the Agenda for This Week?
Overview
Hope you had a great Memorial Day weekend!
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Toss Up.
(1) Inflation Nation: The Fed’s preferred measure of inflation, Core PCE will be on Friday. It is expected to gain 0.3% on top of the prior month’s pace of 0.3%. A stronger than expected reading will pummel pricing while a weaker than expected reading will propel MBS pricing.
(2) The Talking Fed: Next week is the Fed’s media “blackout” period, so this is the last week of Fed speeches prior to the June FOMC meeting.
- 05/28: Mester, Kashkari, Cook
- 05/29: Fed’s Beige Book, Williams, Bostic
- 05/30: Williams, Logan
- 05/31: Bostic
(3) Toss Up: There are three domestic economic releases that all have equal weight this week: Consumer Confidence, the revisions to the previously released 1st quarter GDP and Chicago PMI.
Treasury Dump
Here is this week’s auction schedule:
- 05/28: 2-year and 5 year notes
- 05/29: 7-year note.
Market Wrap-up
Domestic Flavor
Taking it to the House: The March Case Shiller Home Price Index showed a YOY gain of 7.4% versus estimates of 7.3%. The FHFA Housing Pricing Index showed a small monthly gain of only 0.1% versus estimates of 0.55%.
Consumer Confidence: The headline May Consumer Confidence survey was much better than expected, breaking back above 100 with a 102.0 reading versus estimates of 95.3. However, offsetting that big beat was an increase in the 12-month Inflation Expectations from 5.3% to 5.4%.
Treasury Dump
There were two auctions today. The 2-year note auction saw $69B go off at a high yield of 4.917% and a bid-to-cover ratio of 2.41. The 5-year note auction had $70B go off at a high yield of 4.553% and a bid-to-cover ratio of 2.30.
On Deck for Tomorrow
Weekly Mortgage Applications, Richmond Fed Manufacturing, Fed’s Beige Book and a 7 year Treasury note auction.