What Happened Last Week?
Esoteric Forex Drama Blasts Bonds, Maybe
Friday was very much NOT on the beaten path of typical bond market considerations with most of the selling arguably stemming from Japanese currency intervention. There have been similar episodes in the past, but Friday’s installment came with a twist. In addition to Japan confirming it was selling foreign bonds to prop up Yen values, the U.S. Treasury also apparently got involved. It warned dealers that it could make trades to support the Yen. No one but those involved knows if that means anything beyond using the ESF to execute currency trades, but the net effect seems to have been to grease the skids for U.S. accounts to sell Treasuries first and ask questions later. This isn’t necessarily the final story either. It was also month-end, and it’s also the week before the jobs report on a summertime Friday. Volume was fairly light relative to the size of the sell-off.
Source: Matthew Graham, Mortgage News Daily 7/31/26)
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 (Oil), (2) Jobs, Jobs, Jobs and (3) ISMs.
(1) Geopolitical: MBS were pushed lower (higher rates) last week primarily due to rising oil prices. This week starts off with news that military action from the U.S. is on “hold” to allow for some negotiations. As a result, oil prices have fallen and MBS backend pricing is improving, once again showing a very strong correlation to oil prices and MBS pricing moves.
(2) Jobs, Jobs, Jobs: Every day this week will be either a job or wage related release that culminates with Big Jobs Friday. The stronger the job and wage data is…the worse it is for pricing and vice versa.
(3) ISMs: The most important non-jobs data this week are the ISM Manufacturing (Monday) and ISM Services (Wednesday).
Market Wrap-up
Domestic Flavor
Bob the Builder: June Construction Spending fell by -0.1% versus estimates of +0.2%.
Rosie the Riveter: July ISM Manufacturing PMI was better than expected, rising to 55.6 versus estimates of 54.0. Prices Paid were VERY HIGH at 71.1 but that is off last month’s highs of 73.0. Employment jumped from 49.7 to 52.8.
Texas Tea, Black Gold
WTI is down over $4.00 to 80.33.
On Deck for Tomorrow
Trade Balance, Factory Orders and JOLTS.