What Happened Last Week?
Uneventful Conclusion to a Volatile Week
Bonds put in a decent day on Friday, ultimately getting back into positive territory and the best closing levels of the week. Yields were almost perfectly in line with the previous Friday’s. Overall, most of the last 3 days were uneventful, but Tuesday’s range breakout meant it was a volatile week overall. MBS and mortgage rates enjoyed ample insulation against that breakout thanks to recent outperformance driven by GSE MBS purchases (both actual and anticipated). The Fed is on deck this week, but with a zero percent chance of a rate cut. True big-ticket data won’t return until next week.
Source: Matthew Graham, Mortgage News Daily 1/23/26)
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) Central Bank Palooza, (2) Geopolitical, (3) Domestic Flavor.
(1) Central Bank Palooza: The Fed’s Interest Rate Decision and Policy Statement will be on Wednesday, followed by a live presser with Fed Chair Powell. The bond market is not currently pricing in a cut. Regardless of a cut or not, the bond market is most sensitive to their balance sheet and any changes in their runoff schedule or even to start purchases again could really have a big impact on pricing. There will also be a key interest rate decision out of the Bank of Canada.
(2) Geopolitical: The President is giving a big speech this week, and we are still waiting for an announcement out of the Supreme Court on tariffs. We are also fast approaching the deadline for another government shutdown.
(3) Domestic Flavor: The key reports this week are Chicago PMI, PPI and Consumer Confidence.
Market Wrap-up
Rosie the Riveter: November Durable Goods Orders were much stronger than expected, up 5.3% versus estimates of 0.5%. Ex-Transportation, 0.5% versus estimates of 0.3% and Non Defense Capital Goods Ex Aircraft, up 0.7% versus l prior month of 0.3%.
Report Card: The Chicago Federal Reserve put out its November Economic Activity Index and it came in at -0.04 versus prior month of -0.42.
Treasury Dump: Today’s 2-year note auction went well with $69B went off at a high yield of 3.580% and a bid-to-cover ratio of 2.75.
On Deck for Tomorrow: FOMC starts two days of meetings, Consumer Confidence, New Homes Sales, Richmond Fed.