What Happened Last Week?
Flat Friday, But Volatility Risks Remain
Bonds started weaker on Friday, flipped stronger mid-day, and then slowly moved back to unchanged levels by the close. Most of the day’s volatility surrounded comments from a Swiss finance minister on this weekend’s US/China trade talks in Switzerland. The movement was very small in the bigger picture, possibly reflecting the very low odds for any sort of trade resolution like Thursday’s UK/US deal. CPI will provide the first big-picture assessment of April’s inflation (still exceptionally early when it comes to potential tariff-related impacts, but not too early to see some impact).
Source: Matthew Graham, Mortgage News Daily 5/9/2025)
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) Retail Sales.
(1) Tariffic: Trade and tariff negotiations/announcements/expectations will continue to be the main driving force in long bond yields. The weekend negotiations with China led to a 90-day “cool off” period, where China lowered tariffs on U.S. goods from 125% down to 10% and the U.S. lowered their tariffs of 145% down to 30%.
(2) Inflation Nation: Both CPI and PPI will be this week. Headline CPI is expected to flip from -0.1% all the way up to 0.3%. The hotter this data is, the worse it will be for bonds.
(3) Retail Sales: This is where the “rubber meets the road” between the extremely soft consumer survey data versus hard/actual data.
The Talking Fed
Here is this week’s schedule with the focus on Thursday’s Fed Chair Powell speech:
- 05/12: Kugler
- 05/14: Waller, Jefferson, Daly
- 05/15: Powell, Barr
- 05/16: Barkin, Daly
Market Wrap-up
Domestic Flavor
There were no domestic economic releases today.
On Deck for Tomorrow: Consumer Price Index and Core CPI.