What Happened Last Week?
Modestly Weaker But Ultimately Uneventful
In terms of the realized volatility relative to potential volatility, last week turned out to be about as calm as one could have possibly imagined. It is truly stunning that experts will not be able to look back on daily bond market charts and pick out the most interesting Fed meeting in years. As for Friday, it was void of data and serendipitously weaker for bonds. One could argue that it’s a simple continuation of “selling the news” after “buying the rumor,” but it can be argued motivations don’t matter when only counting a few bps of weakness in 10-year yields that are at levels that are still lower than all but a week and a half of the past year and a half.
Source: Matthew Graham, Mortgage News Daily 9/20/2024)
What’s on the Agenda for This Week?
Overview
MBS only moved -5BPS last week… for the entire week.
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) The Consumer.
(1) Inflation Nation: The Fed’s preferred measure of inflation will be on Friday with the Core PCE, which is expected to rise by 0.2% on a MOM basis and to move from 2.6% to 2.7% on a YOY basis.
(2) The Talking Fed: Now that Fed week is in the rearview mirror, the bond market is focused on the next move and will give a lot of weight to this week’s speakers:
- 09/23: Bostic, Goolsbee, Kashkari
- 09/26 Powell, Collins, Williams
(3) The Consumer: Two key report cards on the state of the consumer will be this week. The August Consumer Confidence surprised to the upside; the September reading is expected to remain elevated. On Friday will be the final reading on the UofM Consumer Sentiment Index.
Treasury Dump
Here is this week’s Treasury auction schedule.
- 09/24: 2-year notes
- 09/25: 5-year notes
- 09/26: 7-year notes
Market Wrap-up
The Talking Fed
Chicago Fed President Austan Goolsbee said, “I am comfortable with a starting move like this – the 50 basis point cut in the federal funds rate announced last Wednesday – as a demarcation that we are back to thinking more about both sides of the mandate.” Goolsbee added, “If we want a soft landing, we can’t be behind the curve.” Atlanta Fed President Raphael Bostic said he felt the economy was closing in on its “normal” level for both key statistics faster than he expected, and that monetary policy should adjust as well from the current tight credit stance. The half-point cut last week was an appropriate way to kick off that process, he said, though the Fed needn’t go on a “mad dash” to lower rates amid what he described as a “robust” discussion of how far and fast borrowing costs should decline.
Rosie the Riveter
The S&P Markit Manufacturing PMI dropped to a 15-month low with a reading of 47.0 versus estimates of 48.5. Services were 55.4 versus estimates of 55.2 but dropped from the prior month’s level of 55.7. However, there was MAJOR INFLATIONARY pressure as prices charged for goods and services are both rising at the fastest rates for six months, with input costs in the services sector – a major component of which is wages and salaries – rising at the fastest rate for a year.
Central Bank Palooza
After leaving their main interest rate alone on Friday’s meeting, the People’s Bank of China cut the 14-day reverse repurchase interest rate by 10 basis points to 1.85%, and injected 74.5 billion Yuan, equivalent to $10.6 billion of liquidity while simultaneously stating that their economy is solid.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, Case Shiller HPI, FHFA Housing Price Index, Consumer Confidence, Richmond Fed Manufacturing and a 2-year Treasury note auction.