What Happened Last Week?
Stronger Start, Weaker Finish
Bonds had a fine morning on Friday with overnight gains bringing yields in line with the lowest levels of the past few days within the first 2 hours of domestic trading. From the 9:30am NYSE open on, bonds began moving in the other direction. There were no individual, new catalysts for the weakness, and more importantly, it wasn’t even a level of weakness that matters in the bigger picture. Rather, this is the reality for the next few weeks in addition to being the occasional reality on any Friday afternoon after 3pm ET (due to the CME close). Looking back on the week, the only move that mattered was the sell-off into Wednesday morning. After that, the unwillingness on the part of 10-year yields to move back below 4.20 means they’ve been sideways ever since. It’s unpleasant in the moment, but this is nothing compared to what we could see in the coming weeks.
Source: Matthew Graham, Mortgage News Daily 10/25/2024)
What’s on the Agenda for This Week?
Overview
Which “marbles need to fall into place” for there to be a trend reversal?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: {1) Jobs, Jobs, Jobs, (2) Inflation Nation and (3) Grab Bag.
(1) Jobs, Jobs, Jobs: There is a ton of wage and job related data all week culminating in Big Jobs Friday with the NFP, Unemployment Rate and Average Hourly Earnings. The Bond market will be very sensitive (but skeptical) of stronger than expected jobs data on Friday and will rally on weaker than expected data.
(2) Inflation Nation: The Fed’s key measure of inflation will be on Thursday with Core PCE. The weaker the number is, the better it will be for pricing. However, if this is higher than expected, it will drive pricing the wrong way.
(3) Grab bag: There is an important interest rate decision out of the Bank of Japan, a first peek at the 3rd quarter GDP and Geopolitical.
Market Wrap-up
Treasury Dump: There were two dismal auctions today. The 2-year Treasury Note auction saw $69B go off at a high yield of 4.130% versus the last auction rate of 3.525%. Demand was soft with a bid-to-cover ratio of 2.50. There was also a 5-year Treasury Note auction. $70B went off at a high yield of 4.138% versus the last auction rate of 3.519%. Demand was soft with a bid-to-cover ratio of 2.39.
On Deck for Tomorrow: Case Shiller YOY, FHFA Housing Index MOM, Consumer Confidence, JOLTS, 7-year Treasury Note auction.