What Happened Last Week?
Perfect Storm Leaves Rate Range Perfectly Intact
Coming into the week, yields were near the top of a narrow range (3.4-3.56 give or take). With both ISM reports, the jobs report, and policy announcements from the Fed/ECB/BOE, it was a distinct possibility that we’d see that range broken. By Thursday morning, that looked like it was a work in progress, but by the end of the day, yields were back to 3.40. Then in a cruel twist of fate Friday morning, NFP beat forecasts by the widest margin in a year and half. 90 minutes later, ISM crushed its forecasts as well. These events combined to push yields right up to the top of the range, leaving experts to hurry up and wait for the next set of potential market movers.
Source: Matthew Graham, Mortgage News Daily 2/3/23)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) The Talking Fed, (2) Treasury Dump, and (3) Central Bank Palooza.
(1) The Talking Fed: After last week’s shift from unconditionally-hawkish to conditionally-hawkish, the markets have hedged (bet) that the FOMC would need to moderate their policies this year. Now that the FOMC meeting is over, so is the media blackout period among Fed speakers and we will have a slew of them this week.
- 02/07: Fed Chair Powell
- 02/08: Williams, Waller, Barr, Bostic
- 02/09: Kashkari, Waller, Fed Balance Sheet
- 02/10: Harker
(2) Treasury Dump: While the political theater continues to unfold as the government attempts yet another debt ceiling raise, the Treasury will conduct three auctions with the most important (for backend pricing) being Thursday’s 30-year bond auction.
- 02/07: 3-year note
- 02/08: 10-year note
- 02/09: 30-year bond
(3) Central Bank Palooza: This week there will be a key interest rate decision out of Australia, as well as key speeches from the Bank of England and the European Central Bank.
Market Wrap-up
Overview
It was a quiet start to the week with no Fed speakers or domestic economic releases.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, Fed Chair Powell Speech, Trade Balance, Consumer Credit Change and a 3 year Treasury Note Auction.