What Happened Last Week?
Stronger Bonds, Before and After (and Regardless of) Economic Data
Bonds were stronger overnight Tuesday with 10-year yields hitting roughly 4.25% even before Wednesday morning’s economic data came out. At the 3pm CME close, 10-year yields were still at 4.25% and they didn’t stray too far from that midpoint in either direction. Data was neither friendly nor unfriendly and there was certainly no discernible reaction. Experts are left to chalk up the rally to serendipitous, temporary factors such as month-end trading, holiday weekend position squaring, and the proverbial skids being greased by a light liquidity environment. It was and always will be the plan to basically ignore market movement on Thanksgiving week and tune back in more attentively during jobs report week (i.e., this week).
Source: Matthew Graham, Mortgage News Daily 11/27/2024)
What’s on the Agenda for Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs (2) The Talking Fed and (3) Geopolitical.
(1) Jobs, Jobs, Jobs: It’s the first week of a new month which means it’s time for Big Jobs Friday! There is a TON of job and wage related data every day this week starting off with today’s ISM Manufacturing Employment Index and culminating with Friday’s Non Farm Payrolls, Unemployment Rate, Average Hourly Earnings and more. Broadly speaking, the higher the wage data appears the worse it will be for pricing. However, for jobs numbers, more weight will be given to the private sector reports (Challenger, ADP, ISM) versus that from the BLS.
(2) The Talking Fed: It’s a busy schedule this week as we enter the media “black out” period next week leading up to the December FOMC meeting. Wednesday will take center stage as we hear from Fed Chair Powell and get the Beige Book.
(3) Geopolitical: As the Cabinet picks are rounding out and the markets know who the Treasury Secretary and Commerce Secretary will be along with the heads of the SEC, etc., markets are trying to gauge the bifurcation of deeper tariffs versus massive government waste/cost cutting (DOGE), lower regulations, etc.
Market Wrap-up
Domestic Flavor
Bob the Builder: October Construction Spending was higher than expected, up 0.4% versus estimates of 0.2%.
Rosie the Riveter: The November ISM Manufacturing PMI remained in contractionary territory but was less worse than projected, 48.4 versus estimates of 47.5. The Employment Index moved higher from 44.4 to 48.1 but is still below 50. Prices Paid fell from 54.8 to 50.3 which is a positive sign.
On Deck for Tomorrow: JOLTS
The Talking Fed
Atlanta Fed President Bostic said he’s undecided on whether an interest-rate cut is needed this month, but still believes officials should continue lowering rates over the coming months.