What Happened Last Week?
Markets Were Skeptical of Mid-Day Peace Headlines and That Was a Good Instinct
A few hours into the trading session, newswires came out that seemed to offer the best hopes of a peace deal yet. Specifically, it said that Trump was in the situation room to make a final determination on the peace deal and that issues required for the infamous one page memo had already been agreed upon. Markets were surprisingly cautious about reading too much into that, although it briefly took yields to their lowest levels of the week. By the end of the day, we learned that no decision had been made and negotiations weren’t any farther along than already assumed based on the week’s earlier “close to signing the memo” news. Bonds faded back toward opening levels to end the day roughly unchanged. This week brings more headline-watching as well as the month’s biggest slate of domestic econ data.
Source: Matthew Graham, Mortgage News Daily 5/29/26)
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) Geopolitical, (2) Jobs, Jobs, Jobs and (3) ISMs.
(1) Geopolitical: The weekend has come and gone with no deal in place. While last week’s MBS gains were driven by “hopium” and the resulting oil price declines, this week may be more influenced by “fadium” with higher oil prices.
(2) Jobs, Jobs, Jobs: There will be a job or wage related data point every day this week culminating in Big Jobs Friday, with NonFarm Payrolls, Average Hourly Earnings and the Unemployment Rate getting the most attention. The stronger this data is overall, the worse it is for pricing and vice-versa.
(3) ISMs: Both Manufacturing and Services PMI will get a lot of attention as the bond market will focus on the Prices Paid component as a key measure of inflation.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: May ISM Manufacturing PMI was very solid with a reading of 54, an increase over April’s 52.7 and beat out the forecasts of 53.0. The Employment Index was still contractionary but picked up from 46.4 to 48.6. Prices Paid dropped from 84.6 to 82.1 but 82.1 is ridiculously high.
Bob the Builder: April Construction Spending was double the market expectations, 0.4% versus 0.2%.