What Happened Last Week?
A Little Early Excitement
Bonds began the day Friday with a bit of excitement following Trump comments on raising EU tariffs to 50%. The reaction was bigger than warranted based on the time of day/week as well as the fact that it was the Friday before a 3-day weekend. All that said, markets were easier than normal to push around with seemingly relevant headlines. By the time human traders were sorting things out, stocks and bonds were moving back in the opposite direction. The day ultimately ended with modest gains, but at levels that represent the 4th weakest close in 3 months. Ho hum in the bigger picture, but better than a sharp stick in the eye.
Source: Matthew Graham, Mortgage News Daily 5/23/2025)
What’s on the Agenda for This Week?
Overview
I hope you enjoyed the holiday weekend! This is a very packed week for data.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) Inflation Nation and (3) The Consumer.
(1) Geopolitical: The “Big Beautiful Bill” will continue to drive markets as more of it is understood and markets weigh possible adjustments in the Senate as well as the probability of it even getting out of the Senate. Tariff negotiations (EU in center stage) will also continue to drive prices. Japan has helped us out this morning as they announced that they are mulling “trimming” the issuance of super-long bonds.
(2) Inflation Nation: The Fed’s Official measure of inflation, Core PCE will be on Friday. Will there be any impact on tariffs? The higher this data set (along with Personal Incomes and Personal Spending), the worse it will be for pricing and vice versa.
(3) The Consumer: Both Consumer Confidence and Consumer Sentiment will be this week. These have seen really low levels combined with really high inflation expectations.
Treasury Dump
Here is this week’s Treasury auction schedule:
- 05/27: 2-year note
- 05/28: 5-year note
- 05/29: 7-year note
Market Wrap-Up
Domestic Flavor
Taking it to the House: March FHFA House Price Index showed a MOM decline of -0.1%. March Case Shiller HPI had its YOY reading move lower from 4.5% down to 4.1%.
Rosie the Riveter: The April Headline Durable Goods Orders were better (less worse) than expected, down -6.3% versus estimates of -7.9%. Ex Transportation, they were up 0.2% versus estimates of -0.1%. The bond market gives the most weight to the Non-Defense Capital Goods Ex Aircraft which tanked from +0.3% down to -1.3%. The May Dallas Fed Manufacturing Business Index improved from -35.8 to -15.3.
Glass Half Full: The May headline Consumer Confidence Index saw a nice surge from 85.7 to 98.0 (partially due to the “pause” with China tariffs) and breaks a 5-month trend of slumping numbers.
Treasury Dump
Three days of dumping debt into the marketplace kicked off with today’s shorter term 2-year note. $69B went off at a high yield of 3.995% and a bid-to-cover ratio of 25.7.
On Deck for Tomorrow
Richmond Fed MFG, Minutes from the last FOMC meeting and a 5YR note auction.