What Happened Last Week?
Moody’s Pulls Pin and Walks Away with 10 Minutes Left to Trade
Bonds began the day on Friday stronger after a gentle overnight rally. Selling commenced at 9:30am for the 4th day in a row and picked up slightly after the highest reading on inflation expectations since 1981. Even then, losses were modest at best and bonds were generally flat/unchanged until the very end of the day. With carefully considered timing, Moody’s pulled the pin and walked away with 10 minutes left to trade. The grenade in this case was a downgrade of the US credit rating. This move is certainly in the ratings agencies’ playbooks amid congressional budget battles, but most notably all the way back in 2011. Also of note, Moody’s was the last of the big 3 to have the US at a triple A rating, so while it’s not the craziest thing that ever happened to bonds, the timing made for some last minute selling ahead of the 5pm cut-off.
Source: Matthew Graham, Mortgage News Daily 5/16/2025)
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) Geopolitical, (2) The Talking Fed, (3) Central Bank Palooza.
(1) Geopolitical: The “Big Beautiful Bill” finally made it out of committee and will face votes in the House and IF passed would move on to the Senate which faces more uncertainty. The bond market is also going to be very sensitive to tariff announcements. Over the weekend Moody’s downgraded the U.S. one level in their credit rating.
(2) The Talking Fed: After Powell opened the door on the FOMC discussing how to better address inflation targets, the bond market is very keen on any color from the Fed. This week’s schedule:
- 05/19: Bostic, Williams, Logan and Kashkari
- 05/20: Barkin, Bostic, Musalem
- 05/21: Atlanta Fed Inflation Expectations, Barkin
- 05/22: Williams
(3) Central Bank Palooza: There will be key interest rate decisions from the People’s Bank of China and the Reserve Bank of Australia. The focus is on China which is expected to announce a rate cut.
Market Wrap-up
Leading Down: April Leading Economic Indicator Index dropped from -0.8% down to -1.0% showing an acceleration of the longer trend economic slowdown that this index has shown for over a year.
On Deck for Tomorrow: Reserve Bank of Australia Interest Rate Decision, People’s Bank of China Interest Rate Decision.