What Happened Last Week?
Sizeable, Straightforward Selling Spree
Friday’s jobs report was much stronger than expected and there were no compelling counterpoints to give traders any second thoughts. As such, traders proceeded logically by dumping bonds. Trading levels hit the 3pm close very close to the levels seen immediately after the jobs report and there wasn’t much fanfare in between. All in all, a reaction that was as straightforward as it was unpleasant.
Source: Matthew Graham, Mortgage News Daily 1/10/2025)
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) Inflation Nation, (2) The Talking Fed and (3) Retail Sales.
(1) Inflation Nation: Inflation (not jobs) was the number 1 mover of backend pricing last week. This week are important readings PPI, CPI and Import Prices with the bond market giving the most weight to Headline CPI.
(2) The Talking Fed: The bond market has priced out zero movement from the FOMC at this January’s meeting. This is the last week before the media “black out” period starts and it’s the last opportunity for any Fed representative to get their message out. The Fed’s Beige Book is also this week, which is prepared in advance of the next FOMC meeting.
(3) Retail Sales: Outside of the inflationary data sets that will be released this week, the most important economic release is Thursday’s Retail Sales. The stronger this report is, the worse it will be for pricing and vice versa.
Market Wrap-up
The benchmark FNMA MBS 6.000 February coupon was down 27 BPS at 3 PM ET.
Domestic Flavor: There were no domestic economic events today.
On Deck for Tomorrow: PPI, Core PPI, NFIB Business Optimism Index.