What Happened Last Week?
Mortgage Rates Sideways to Slightly Lower
After rising somewhat sharply Thursday, mortgage rates managed to find their footing on Friday’s market session. Bonds typically face more volatility risk when they have to digest scheduled economic data or major news headlines. Friday offered a light supply of both (especially econ data…lendthere was none). As such, trading levels didn’t drift far from Thursday afternoon’s and the average mortgage lender was able to lower costs by just a hair. The average borrower would still be seeing the same interest rate that was quoted yesterday, but possibly with microscopically lower upfront costs. Note: rates were close enough to unchanged that those upfront costs could be slightly higher in some cases.
Source: Matthew Graham, Mortgage News Daily 7/21/2023)
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 Talking Fed, (2) Central Bank Palooza and (3) Inflation Nation.
(1) The Talking Fed: The Fed’s latest Interest Rate Decision and Policy Statement will be issued on Wednesday. The markets are widely expecting a 25BPS increase but the tone of the Policy Statement, vote count and live presser with Powell could have a huge impact on pricing.
(2) Central Bank Palooza: There will be a key Interest Rate Decision out of the European Central Bank on Thursday which is expected to raise by 25BPS and has been quite “hawkish” their last couple of meetings. A change in guidance or tone will move markets. The Bank of Japan has their meeting results on Friday morning. They are not expected to change their rate but the markets are interested in any change to their YCC (yield curve control) policy.
(3) Inflation Nation: The Fed’s key measure of inflation, Core PCE will be on Friday.
Market Wrap-up
Domestic Flavor
Flash it: The July Preliminary Markit Flash PMIs were mixed with Manufacturing PMI rising to 49 from 46.3 and Services PMI falling from 54.4 to 52.4.
Treasury Dump: The 2-year Treasury note auction at $42B went off at a high yield of 4.823% with a bid-to-cover ratio of 2.78.
On Deck for Tomorrow: Consumer Confidence, FHFA MOM Housing Price Index, Case Shiller YOY Home Price Index, Richmond Fed Manufacturing and a 5-year Treasury Note Auction.