This is Matt Graham with the MBS Live Market Update and the middle of the previous week, one of the headlines for one of the recaps we sent out was entitled bonds can seemingly do no wrong. And in fact, that was generally a theme or an idea that could be applied to much of the week, both before and after that headline case in point today is on track to being the ninth straight day where bond yields have. Fallen during the day and by just a hair the ninth straight day where yields will be closing lower than they did the previous day. The only technical exception to that would be last Thursday where yields basically closed right in line with the previous session. Still not a bad result. So, what’s going on? Typically, we’d start talking about things like economic data at this point. At so many times in the past few years, we’ve rehashed the phrase, quote unquote, data dependent, and we tend to bounce from key report to get our biggest cues for bond market movement. Those reports would be things like the jobs report, which we have coming up this Friday, by the way, or the consumer price index and to some extent, ISM PMIs. We actually had one of those this morning. We’ll talk about in a second. But in the case of last week, there were no big ticket reports that had a major impact on bonds. We were definitely looking forward to Friday’s PCE inflation data. But that is a report that really only moves the needle if it does something very far from expectations. In this case, it was expected to come in a little bit lower over the course of the past three weeks as traders revised their estimates. due to the PPI data that came out two weeks prior to the PCE data, and that did a really good job of helping refine the estimates, which ended up being more or less right on. Thus, there was not a big reaction to PCE on Friday, because there was a big reaction to what PCE was probably going to do two weeks before it came out, and that is often the case with that report. And that’s why it only tends to move markets when it falls far from expectations. Consumer confidence was really the only data that moved the needle in any obvious way last week and it wasn’t that much, but it was in a bond friendly direction. It also spoke to an underlying phenomenon that is more responsible for bond market movement. And that is simply a bearish repositioning. In terms of the economic outlook and in terms of equities markets, in other words, stocks have been selling fairly significantly at times. Those selling sprees have lined up fairly well with bond buying bond traders. Haven’t been in a rush to unwind that bond buying, even when stocks have bounced, maybe if stocks bounced in a bigger way and moved back up toward all time highs bonds might care a little bit more, but. Without that being the case, it has not created any major headwinds for bonds. One can only speculate as to the underlying motivations. Certainly, a common case is that fiscal policies are. Risking causing economic contraction, or at least a contraction relative to what otherwise may have been the case and the market is repricing those economic expectations just this morning. Atlanta Fed GDP now fell to negative 2. 8%. Which was a fairly big revision from an already negative number that was reported the last update GDP now is a calculation based on other economic data. And when new economic data comes out, the calculation is revised all that to say GDP now, and the notion of traders selling stocks to buy bonds are both part of the same dynamic, which is reflecting more economic pessimism and a flight to safety that benefits the bond market. It will continue if data continues to be weak and it will really be justified if the bigger ticket economic reports come in weaker. Fortunately, we have quite a few of those this week. We had ISM manufacturing this morning. It came out as expected at the headline level, but Almost every component was much weaker. It was really only the price component that buoyed the number overall, but important components like employment and new orders fell sharply. And while the price component would push yields up, technically, the other components were weak enough to outweigh that in this case, and they helped the bond market get back into positive territory after a weaker overnight session. During the rest of the week, the usual suspects will be coming out ADP jobs on Wednesday morning, ISM non manufacturing that same morning. And of course jobless claims on Thursday, not to be confused with the big jobs report on Friday at 8 30 AM Eastern the markets expecting 153,000 payrolls created and a 4 percent unemployment rate. If we were to dip below say a hundred thousand payrolls or if unemployment were to move up to 4. it would almost. Certainly keep the good times rolling for the bond market because the bond market loves when the economy is having bad times. That’s going to do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.