What Happened Last Week?
Bonds Retreat a Bit, No Compelling Reasons or Implications
Bonds rallied to the best levels in months earlier last week but have been retreating since then. At first, the retreat was gradual. By Friday, it was a bit more pronounced, but still lacked any compelling scapegoats. Earlier in the day, analysts pointed to China reopening after covid lockdowns. Heavy selling in European bonds spilled over to Treasuries as ECB speakers struck a hawkish tone. Traders also may simply have been squaring up positions ahead of a week with no Fed speakers and a round of Treasury auction supply. Despite the slightly brisk losses, trading levels were right in line with the end of the previous week, so markets are effectively just waiting for inspiration before going on a bigger run.
Source: Matthew Graham, Mortgage News Daily 1/20/23)
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) Inflation Nation, (2) Central Bank Palooza and (3) GDP.
(1) Inflation Nation: The Fed’s key inflation gauge will be on Friday with PCE as well as Personal Incomes and Spending. Will this follow the recent softening in CPI and PPI or buck the trend? The weaker this data is, the better it will be for pricing.
(2) Central Bank Palooza: The Bank of Canada will issue a key interest rate decision on Wednesday; they are expected to raise by only 25BPS.
(3) GDP: On Thursday will be the final look at the 3rd quarter and first look at the 4th quarter GDP data.
Treasury Dump
There are a batch of shorter to mid-term notes this week
- 01/24: 2-year note
- 01/25: 5-year note
- 01/26: 7-year note
The Talking Fed
The media blackout period has started leading up to the next FOMC meeting so there won’t be any comments from any members of the Fed regarding their policy this week.
Market Wrap-up
Domestic Flavor
There were no domestic events today.
On Deck for Tomorrow: Richmond Fed Manufacturing, 2-year Treasury note auction.