What Happened Last Week?
Bonds Manage to Hold Gains Despite Risk Recovery
Everything has been driven by the “risk-on, risk-off” movements relating to the banking sector over the past 2 weeks. The only brief exception was on Fed day, but markets still managed to fall into a flight-to-safety pattern by the end of that day. Another flight-to-safety showed up overnight Thursday – this time driven by Deutsche Bank. EU bonds led US bond yields lower, but the momentum reversed course before 7am ET. The rest of the day saw stocks and EU bonds trudge back toward or above Thursday’s levels. US bonds managed to hold some of the gains with 3.382 emerging as a good pivot point for 10-year yields.
Source: Matthew Graham, Mortgage News Daily 3/24/23)
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) The Running Man, (2) The Talking Fed and (3) Inflation Nation.
(1) The Running Man: The dominant force in pricing over the past 2 weeks has been the flight to quality in bonds due to concern over the banking system both at home and abroad. This week will be no exception. IF there is more concern over new mid-regional domestic banks, then pricing will remain very attractive but if the bond market feels that the worse is over, it will lose pricing.
(2) The Talking Fed: The markets will be paying close attention to any speeches from the Federal Reserve this week as they are trying to handicap the banking system, inflation, pending recession and the path of Fed rate hikes.
(3) Inflation Nation: The Fed’s key measure of inflation, Core PCE, will be issued on Friday.
Market Wrap-up
Treasury Dump
Three days of dumping debt into the marketplace kicked off with the shorter term 2-year note auction. $42B went off at a high yield of 3.954% and a bid-to-cover ratio of 2.44.
The Talking Fed
Gov. Jefferson will speak at 5:00 EDT today.
The Running Man
First Citizens Bank basically bought what was left of SVB and had support from the Fed on the transaction. This led to MBS losing some of its “fear factor” premium.
On Deck for Tomorrow
Case Shiller Home Price Index, FHFA Housing Price Index, Richmond Fed Manufacturing Index and a 5-year note auction.