What Happened Last Week?
Some Bond-Specific Weakness in the Afternoon
Oil and Treasury yields were almost perfectly correlated for almost the entire week. Friday afternoon was an exception. Oil continued sideways to slightly lower while yields rose a bit. Overall damage was negligible, but it was interesting nonetheless. While there was no clear news or event behind the move, it can be plainly seen that it originated in the shortest end of the curve and/or Fed rate expectations. Friday afternoon illiquidity likely made the move bigger than it otherwise would have been. As for potential reasons, it could be as simple as dealers positioning for this week’s inflation reports and Warsh testimony.
Source: Matthew Graham, Mortgage News Daily 7/10/26)
What’s on the Agenda for This Week?
Overview
There will be a slow start to the week but it’s a very packed week with a lot of data and events that can impact MBS pricing.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) The Talking Fed and (3) Inflation Nation.
(1) Geopolitical: This will continue to dominate long bond yields as this weekend’s further escalation in the Middle East and the potential closure or partial closure of the Strait of Hormuz creates more instability and uncertainty.
(2) The Talking Fed: Fed Chair Warsh will testify on Tuesday and Wednesday, and the Fed’s Beige Book will be on Wednesday. There will also be a ton of speeches this week from FOMC members.
(3) Inflation Nation: There will be a lot of inflationary-related data this week. Headline CPI is actually expected to be negative on a MOM basis. Obviously, this is due to energy prices dropping short term. There will also be PPI, Import and Export Prices.
Honorable Mention: Retail Sales on Thursday will get a lot of attention as will the Bank of Canada’s Interest Rate Decision.