What Happened Last Week?
Why So Much Selling in Bonds?
Without a doubt, it was a frustrating and puzzling week for the bond market. Everyone knows that bonds have moved consistently higher in yield, but there is very little understanding and agreement about WHY that move has taken place. Europe had a rough week, but EU bonds didn’t lose as much ground as US bonds, so we can’t really stop there. We also know that econ data wasn’t to blame (or if it was, traders bought bonds at first and then changed their minds later in the day–not typical behavior, to say the least). Beyond those considerations, we’re left with guesses and possibilities that are much harder to substantiate and much more esoteric. These include things like year-end positioning constraints, a move to the sidelines before the Fed announcement, and curve trading driven by one of several factors.
Source: Matthew Graham, Mortgage News Daily 12/13/2024)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Central Bank Palooza and (3) Retail Sales.
(1) The Talking Fed: The FOMC’s Interest Rate Decision and Economic Projections will be on Wednesday at 2 pm ET followed by a live presser by Fed Chair Powell.
(2) Central Bank Palooza: Our Fed is not the only game in town this week as key interest rate decisions will also be from the People’s Bank of China (expected no change), The Bank of Japan (expected no change) and the Bank of England (expected no change).
(3) Retail Sales: The most important domestic economic release this week is Tuesday’s Retail Sales.
Treasury Dump
There is an important 20-year Treasury bond auction on Tuesday.
Market Wrap-up
Rosie the Riveter: The December NY Empire Manufacturing PMI cratered from November’s reading of 31.2 all the way down to 0.2 in December. The preliminary “flash” December S&P Markit Manufacturing PMI dropped from 48.8 down to 48.3. The Services PMI increased from 57.0 to 58.5.
On Deck for Tomorrow: Retail Sales, Retail Sales Ex Autos, Retail Sales Control Group, Industrial Production and Capacity Utilization, NAHB Home Builder’s Sentiment, 20-year Treasury Bond auction, FOMC starts two days of meetings.