What Happened Last Week?
Another False Alarm Turns into Bond Market Beat-Down
If Friday’s bond market behavior wasn’t making us cry, we’d just have to laugh. Not even 24 hours after another volley of analysts and talking heads proclaimed “the top is in for rates!” 10-year yields are closing at the highest levels since late 2018, and mortgage rates are right back in line with the ugly levels seen earlier last week. Culprits are anything but easy to spot with the most obvious move coinciding with the 9:30am NYSE open (suggesting a position-driven move, possibly/probably with an eye on de-risking into a 3.5-day weekend). There was some chatter about Fed and ECB comments, but these didn’t line up as well with the drama in terms of timing and volume. Illiquidity greased the skids.
Source: Matthew Graham, Mortgage News Daily 4/14/22)
What’s on the Agenda for this Week?
MBS OVERVIEW
After a holiday-shortened week, the bond market is back to full strength.
Three Things
The three areas that have the greatest ability to impact mortgage backed securities backend pricing this week are: (1) The Talking Fed, (2) Domestic Flavor and (3) Geopolitical.
(1) The Talking Fed: The primary focus of the markets remains trying to hedge for future (and as of yet not officially announced) rate hikes and balance sheet reduction (QT). Speculation on the path of these two items is driving bond yields. Several key Fed members will speak this week and their Beige Book will be released on Wednesday.
(2) Domestic Flavor: There is a lot of housing related news this week but there aren’t any major economic releases that, by themselves, could cause pricing to pivot. Initial Weekly Jobless Claims will get the most attention to see if the weekly sub-200K trend continues.
(3) Geopolitical: China and Ukraine continue to dominate the headlines. On Chinese front, they had much stronger than expected 1st quarter GDP but their draconian lockdowns are a major headwind. China is actually now reporting Covid-related deaths in the Shanghai region (numbers are of course considered lower than reality) and there is now civil unrest with clashes between citizens and the government over forced lock down centers. Ukraine and Russia will continue to cause issues with supply-side inflation related to wheat, fertilizer, etc. There is also an IMF meeting this week to watch.
Treasury Dump
There will be a 20-year Treasury bond auction on Wednesday.
Market Wrap-up
Taking it to the House
The April NAHB Housing Market Index dropped from 79 to 77 but that is exactly what the markets expected. Anything above 50 is positive, still the decline is due to higher material costs and mortgage rates.
On Deck for Tomorrow
Housing Starts and Building Permits, Fed Speakers Evans and Kashkari.