What Happened Last Week?
Data Dependence is Back, but Not in a Fun Way
Bonds definitely paused their long-term relationship with economic data in wake of the tariff announcement in early April, which was logical given the headline-driven volatility and uncertainty. Two weeks ago, the connection looked to be returning. Now over the past 2 days, it’s back with a vengeance. It’s not that any of the data has been stunningly strong, but it’s been much better than what some market participants were prepared to see. Friday’s jobs report is the second time in 2 days where traders have been able (or forced?) to reconcile their more dire fears with a less dire reality. Translation: higher stocks, higher yields. More big ticket data on the way on Monday.
Source: Matthew Graham, Mortgage News Daily 5/2/2025)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing are: (1) The Talking Fed, (2) Central Bank Palooza and (3) Domestic Flavor.
(1) The Talking Fed: On Wednesday we will be FOMC’s Interest Rate Decision and Policy Statement. There will NOT be an Economic Projections at this meeting. There is not expected to be any interest rate change at this meeting but some commentary/groundwork may be laid for a cut in July. There will be a live presser with Fed Chair Powell afterwards, then a barrage of talking Feds on Friday.
(2) Central Bank Palooza: The FOMC is not the only game in town as the Bank of England is expected to cut rates by 25BPS.
(3) Domestic Flavor: The biggest economic release of the week is Monday’s ISM Services PMI. Consumer Credit will also get some attention.
Treasury Dump
Here is this week’s auction schedule:
- 05/05: 3-year note
- 05/06: 10-year note
- 05/08: 30-year bond
Market Wrap-up
Check Please: The April ISM Non Manufacturing (Services) PMI was stronger than expected, 51.6 versus estimates of 50.8. Prices Paid shot up from 60.9 to 65.1 and the Employment index increased from 46.2 to 49.0.
Treasury Dump: Three days of dumping debt into the marketplace kicked off with today’s shorter term 3-year note. $68B went off at a high yield of 4.090 and a bid-to-cover ratio of 3.52.
On Deck for Tomorrow: FOMC starts two days of meetings, Trade Balance and 10-year note auction.