What Happened Last Week?
Warsh Speech at Jackson Hole Prompts Heavy Selling
Jackson Hole speeches are hit and miss when it comes to bond market volatility. Friday’s Warsh speech was something of a direct hit–more than enough to sink the battleship of anyone hoping for lower rates to end the week. Warsh’s hawkishness was limited to tough talk on inflation and an upbeat assessment of the economy. It wasn’t terribly different from the late July press conference, but the market viewed it as upgrading the chance of a rate hike before the end of 2026. 2-year Treasury yields (more sensitive to Fed rate expectations than the 10-year) rose more than 12bps by the close. MBS shed 3/8ths of a point and mortgage rates crested 3-week highs.
Source: Matthew Graham, Mortgage News Daily 8/28/26)
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: Last week, the mantra was moving from kinetic to economic warfare with Iran. But this week starts off with fresh military action in the Straight. Bonds will continue to be very sensitive to volatility in oil prices.
(2) Jobs, Jobs, Jobs: The Fed says that the job sector is “stable”. Is it? There will be a ton of job and wage related data all week, culminating in Big Jobs Friday. Prior revisions to the NFP will get a lot of attention as will Average Hourly Earnings and the Unemployment Rate.
(3) ISMs: ISM Manufacturing will be on Tuesday and Services on Thursday. Each contains key inflation (Prices Paid) and employment components.
Market Wrap-up
Rosie the Riveter: August Dallas Fed Manufacturing jumped up from 1.3 to 11.6 versus estimates of only 0.7.
Texas Tea, Black Gold: WTI is up $2.25 on new military action.
On Deck for Tomorrow: ISM Manufacturing, JOLTS, Construction Spending.