This is Matt Graham with the MBS live market update. Last week was a pretty good one for the bond market. It mostly involved rates holding a fairly sideways after the previous week’s rally, which was driven mostly by a favorable reaction to inflation data. It’s a good reminder in these otherwise volatile times that economic data will continue to play the biggest and most important role. In determining bond market momentum last week was completely void, almost of any significant economic data. There were a couple of reports at the end of the holiday shortened week. With S&P global services and consumer sentiment combining to help bonds rally on Friday afternoon and that helped treasury yields and MBS for that matter, hold a fairly narrow range on the week. All in all, though, it was a week of waiting and of speculation concerning the potential impact of some fiscal policies. It’s still very much too soon to draw any major conclusions about how things will play out there. We need to see what policies are actually implemented and more importantly, what the impact ends up issuance, which is a key contributor of the general level of interest rates at present and always for that matter, this week is much more active in terms of economic data. We do have a treasury auction cycle happening in the first 2 days. That’s a condensed schedule to make room for the fed announcement on Wednesday. They don’t like to have treasury auctions on the same afternoon as Fed announcements and the Fed announcement itself is a big piece of news, not because the Fed is going to do anything to rates. They’re not. But we’ll get a chance to see how the most recent CPI data may change the calculus at the Fed for upcoming rate cuts, or potential rate cuts. In other words, we’ve had that CPI data now for almost a week and a half, and we haven’t had it too many opportunities to hear Fed speakers comment on it and none from Powell himself. After the Fed announcement, Thursday morning’s economic data includes GDP. That sounds like a big report because it’s a pretty mainstream report and it’s all encompassing, but it is not normally a market mover for the bond market and the reason is that it is very stale by the time it comes out. There is one instance of GDP reporting that is less stale than the others, and this is that instance. It’s called the advance, and it’s the first look that we’re going to get at Q4 GDP. It will also include the PCE price index and inflation metric for the quarter and that means that we’ll have December as a part of that. And because of that, it gives us a little bit of an early look at most of not most of some of the data that will feed into the following days. PCE announcement that is specific to the month of December. It’s also a little bit more detailed of a report. But if there’s a big move in that quarterly PCE on Thursday, it may suggest that there could be a similar move in the monthly data the following day. There’s no way to be sure of that because it’s Three total months of data in the Thursday report. So if there were big revisions to the previous months, it might not necessarily be December’s inflation data that’s driving things. But in any event, we have seen this happen once in the past two years, where there was a big move in that advance reading on PCE. And that got some speculation ramped up regarding the following days, PCE only to find out that it was previous month revisions that had more to do with the move than bonds bounce back. All that to say. Be aware of the potential for volatility starting Thursday morning, could have volatility before then, of course, with the Fed, but Thursday morning, economic data could be the driver of volatility. In addition to PC on Friday, we have employment cost index also something that the Fed has mentioned paying attention to as another ingredient in determining rate setting policy in terms of outright trading levels rates are high not as high as they were before CPI two weeks ago But near their highest levels in many months back to May 2024 the very least and to reiterate the best and only way to see that come down will be for Economic data to make a case for it primarily Via inflation data. It’s not to say jobs reports can’t matter, but if inflation isn’t moving back to the 2 percent target. In a compelling way, there really is no way for significant improvement to happen in rates could see temporary stuff like we did this morning with the stock market inducing a flight to safety due to heavy selling in NVIDIA owing to Chinese AI upstart stuff, read all about it in literally any new site this morning, but that stuff will always be temporary and won’t be able to hold rates down in the bigger picture or the longer term. That’s all 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.