This is Matt Graham with the MBS live market update last week is really a story of the week before that and the present week, because those two weeks actually have something going on, or had something going on. In the case of two Fridays ago, that was the jobs report that came in quite a bit weaker than expected and sent yields back into the range that was established by the previous CPI report. That brings us to what’s going on this week, which is Wednesday’s big CPI report, but we’ll get caught up with last week really quick, because it’s not entirely fair to say nothing happened. Nothing happened the first three days of the week, but then on Thursday, we had a higher than expected jobless claims sprint at 230, 1k versus 210, K forecast. Those sorts of beats or misses, depending on how you want to define it, do happen from time to time, but they are not common for that data series. And while it is only one week worth of data that is the highest reading since last August, and a potential sign that the labor market is shifting in a weaker direction. Very premature to conclude that it’s just the sort of thing that some traders are going to trade in small numbers, given that volume and liquidity was pretty light in general last week, it perhaps had a bigger impact than it otherwise might have on a more active week for the economic calendar. Following morning took things back in the other direction with consumer sentiment. It wasn’t the headline because the headline was weaker than expected, quite a bit actually, at 660 7.4 versus a 76 forecast, but the one year inflation expectation component rose to 3.5% versus a 3.2% forecast and previous reading that is the highest it has been since November 2023 when it was actually quite a bit higher, up at 4.5% that just goes to show you that the one year inflation expectation component can vary quite a bit and can spike pretty wildly. But everybody is hypersensitive to inflation data right now, and we will likely witness that on Wednesday morning, at 8:30am Eastern Time, that’s when the next CPI report comes out. And we have been saying on MBS live for quite a while that the main job description of the bond market, or bond traders in 2024 and much of 2023 has simply been to wait for CPI reports to come out and react accordingly. It’s not that that’s the only market mover in town, but if you had to pick a dominant market mover that really sets the tone for any given month, that would be the best bet other reports do act as fine tuning adjustments. After all, we just talked about the jobs report doing that last time, and even going back to the April 10 CPI report, which caused a big spike in yields that might have been as high as the bond market went in terms of treasury yields, but then retail sales came out the following day, much stronger than expected, and pushed yields into an even higher range that’s potentially relevant to consider, because retail sales will be released at exactly the same time as CPI on Wednesday morning. Before that, we will get ppi, the producer price index on Tuesday morning that is traditionally nowhere near as big a market mover as CPI, but in the past few months and a few times last year, it did have a much bigger impact than normal, still not on par with CPI, but something worth considering when we’re looking ahead to potential volatility. Other events this week include several housing related reports we have builder confidence on Wednesday, as well as housing starts and building permits on Thursday, several fed speakers will be out. In fact, most fed speakers will be out, but most notably, fed share Powell will be speaking at 10am on Tuesday morning. From a range and technical standpoint, bond yields have been hovering very close to 4.5% in terms of 10 year treasury yields, and we would expect a push back up toward recent highs in the event that CPI comes in much higher than expected and a push down into the range seen before the April 10 CPI, if it comes in much lower than expected, the relevant yield levels in those two cases would be somewhere around 4.7% in the worst case scenario, And somewhere around 4.35% in a better case scenario. I’m not saying that that’s going to happen all at once, but those would be the implications in terms of where we should trend if we get an extreme reaction, for better or worse, to the economic data. That’s going to do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
