What Happened Last Week?
What Do We Make of Last Thursday’s Bond Bounce?
After a big sell-off in response to Wednesday’s Fed announcement, bonds rallied back on Thursday. The gains were slow and steady at first, but the pace quickened at 9:30am (a popular time of day for increased momentum in bonds, even though it’s the NYSE open). Data was overlooked and 10-year yields ultimately made it down to the 1.80% technical level (adjusted to 1.795 to better fit the intraday bounces) but were unable to sustain a breakout. As such, we are left with the possibility that Thursday was another day in the ongoing rising-rate consolidation process (one that just happened to be green) even though the rate bulls are hoping it helps build a case for support at recent ceilings.
Source: Matthew Graham, Mortgage News Daily 1/27/22)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgaged backed securities backend pricing this week are: (1) Central Bank Palooza, (2) The Talking Fed and (3) Jobs, Jobs, Jobs.
(1) Central Bank Palooza: The market expects that the Bank of England will raise their interest rate at this Thursday’s meeting which would be important as a top 5 Central Bank. We also hear from the ECB but the market is not expecting any rate action from them. The Reserve Bank of Australia rounds out the central banking action.
(2) The Talking Fed: After last week’s FOMC meeting, the bond market is very keen to hear from this week’s speakers to try to handicap the path, speed and number of rate hikes this year. Will the Fed kick off with a 50BPS hike in March or 25BPS? Will there be 3 or 7 rate hikes? When will QT really begin?
(3) Jobs, Jobs, Jobs: It will be Big Jobs Friday this week. There will also be a ton of job and wage related data all through the week with internal components of ISM, ADP, Challenger Job Cuts, Initial Weekly Claims, JOLTS, Non-Farm Payrolls, Average Hourly Earnings, Unemployment Rate, U6 Underemployment Rate and more.
Market Wrap-up
Domestic Flavor
Manufacturing: The MidWest’s bellwether Chicago PMI showed a very strong expansion of 65.2 vs. estimates of 61.7 in January. The Dallas Fed Manufacturing Index was weak though and dropped to a reading of only 2 vs. estimates of 9.9.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, ISM Manufacturing, JOLTS and Construction Spending.