What Happened Last Week?
Not Quite the Rally You’d Expect, But a Rally Nonetheless
Friday’s vitals might be a bit confusing at first glance. Payrolls came in at -23k versus forecasts of 80k. At most moments in history, that would be worth a substantial rally. Friday it was only worth 3bps in the 10-year and a quarter point in MBS. To be fair, it was worth even less without a late day drop in oil prices for unrelated reasons. But at this moment in history, low payroll counts are far more common and they’re doing far less to influence the unemployment rate (case in point, Friday’s FELL to 4.1% from 4.2%). This went a long way toward offsetting the drop in payrolls. Nonetheless, payrolls remain very important to traders even if economists have shifted more of their focus to other metrics.
Source: Matthew Graham, Mortgage News Daily 8/7/26)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing are: (1) Geopolitical, (2) Inflation Nation and (3) Retail Sales.
(1) Geopolitical: Last week saw a gain of +55BPS (better pricing) after two prior weeks of selling off (worse pricing). The major difference was a reversal in oil prices. Swings in oil prices will continue to be a big factor in MBS pricing.
(2) Inflation Nation: Both CPI and PPI will be this week, with CPI getting the most weight and is expected to rebound from the prior month’s contraction.
3) Retail Sales: The top of the food pyramid as manufacturing, investment, etc., trickles downward from retail demand. Bonds will be sensitive to an overly strong or weak report.
Treasury Dump
Here is this week’s Treasury Auction schedule:
- 08/11: 5-year note
- 08/12: 10-year note
- 08/13: 30-year bond
Market Wrap-up
There were no economic events today.
Texas Tea, Black Gold: WTI is up over $3.60 and has pressured pricing.
On Deck for Tomorrow: ADP, Existing Home Sales.