What Happened Last Week?
Wild Round Trip Leaves MBS Weaker Despite Huge Initial Rally
Mortgage backed securities (MBS) ended Friday right about where they ended Thursday, and if that’s all there was to know about the future on Thursday afternoon, it would have been good news. But as it was, it could be a bit frustrating considering it meant about 3/8ths of a point of weakness from morning levels. Moreover, there was no glaringly obvious motivation for the reversal, nor was there a similar reversal in equities. That leaves one to consider factors like traders moving to sidelines heading into the weekend and midday headlines regarding Vietnam lowering tariffs on the U.S. (a proof of concept for de-escalation of trade war themes). MBS underperformance can be seen as a combination of Treasuries being the preferred safe havens for flights to safety, and the only beneficiary of the Fed’s QT tapering plans. The takeaway is that the week was a win overall, and that anything can change quickly when the market is taking cues from tariff-driven economic speculation.
Source: Matthew Graham, Mortgage News Daily 4/4/2025)
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) Tariffic, (2) Inflation Nation and (3) The Talking Fed.
(1) Tariffic: The bond market will continue to have very strong swings and reactions as more tariff, retaliatory tariff and trade negotiations unfold this week with the April 9 date fast approaching. The across the board 10% tariffs kicked in on April 5th while the following will escalate in two days:
Laos 48%
Vietnam 46%
Thailand 36%
China 34%
Indonesia 32%
Taiwan 32%
Pakistan 29%
South Korea 25%
Japan 24%
EU 20%
(2) Inflation Nation: Both CPI and PPI are this week and the bond market will move towards worse pricing with higher than expected inflation and will rally with lower than expected inflation.
(3) The Talking Fed: The Minutes from the last FOMC meeting will be issued on Wednesday. The market is also weighing if the Fed will succumb to the White House pressure to lower rates to offset the tariffs.
Treasury Dump
This is a busy week for debt with Thursday’s 30-year bond auction getting the most weight among MBS traders.
- 04/08: 3-year note
- 04/09: 10-year note
- 04/10: 30-year bond
Market Wrap-up
Domestic Flavor
Consumer Credit: The February report came in at -$0.81B versus estimates of $15B.
On Deck for Tomorrow
NFIB Small Business Optimism, 3-year Treasury note auction.