What Happened Last Week?
Modest Gains Made for an Uneventful Week
If bonds had continued to sell off Friday, it would have made the week slightly more interesting, but even then, it would still be well under the high yields seen the previous week. As it stands, the combination of Friday morning’s economic data and an undetermined source of inspiration a short while later left bonds in modestly stronger territory, thus making for a very flat week in the bigger picture. This is neither bad nor good, and also not a huge surprise given the very light data calendar. There are bigger-ticket events this week, including a Fed announcement, GDP (first look at Q4), and PCE inflation.
Source: Matthew Graham, Mortgage News Daily 1/24/2025)
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) Inflation Nation and (3) Central Bank Palooza.
(1) The Talking Fed: The FOMC’s Interest Rate Decision, Policy Statement and live presser with Fed Chair Powell will be on Wednesday starting at 2 pm ET. This is NOT a meeting where they issue their Economic Projections. The markets widely expect the Fed to make no policy change at this meeting however any comments/guidance can have a big impact on pricing.
(2) Inflation Nation: The Fed’s official inflation indicator, PCE will be issued on Friday. The headline PCE YOY, is projected to increase from 2.4% to 2.6% and Core PCE YOY is projected to remain at 2.8%.
(3) Central Bank Palooza: Important interest rate decisions will be issued by the Bank of Canada and the European Central Bank. Both are expected to CUT rates by 25BPS.
Treasury Dump
Here is this week’s Treasury note auction schedule:
- 01/27: 2-year note and 5 year note
- 01/28: 7-year note
Market Wrap-up
Domestic Flavor
Taking it to the House: December New Home Sales were better than expected, 698K versus estimates of 672K.
Economic Growth: The Chicago Federal Reserve National Activity Index (comprised of 85 markers) improved in December to +0.15 from November’s -0.12.
Rosie the Riveter: The Dallas Federal Reserve showed that Manufacturing is picking up in Texas with a reading of 14.1 versus estimates of 4.5.
Treasury Dump
There were two auctions today that were very well received. The 2-year Note saw $69B go off at a high yield of 4.211 and a bid-to-cover ratio of 2.66. The 5-year Note saw $70B go off at a high yield of 4.330% and a bid-to-cover ratio of 2.40.
On Deck for Tomorrow
FOMC starts two days of meetings, Durable Goods Orders, Case Shiller HPI, FHFA Housing Price Index, Consumer Confidence, Richmond Fed Manufacturing, 7YR Treasury note auction.