This is Matt Graham with the MBS Live Market Update. Last week was action packed for the bond market with several big ticket economic reports and other calendar developments that moved the needle up until now, or up until the last two weeks. Anyway, the market had been transfixed by tariff related developments, but those have moved into the backseat and allowed economic data to have a bit of an impact. The first major hint we got of this was with the S&P PMI two and a half weeks ago, and that set the stage for last week’s I-S-M-P-M-I to have an impact. But even before then, the treasury’s quarterly refunding announcement gave the bond market a little bit of relief on Monday morning it generated headlines that were a little bit of a concern for some who didn’t understand that it was really just an accounting adjustment because it said that estimates for borrowing went up by $391 billion for the quarter. But that was a little bit of a misleading as leading headline. And in fact, what it meant was that the treasury auction amounts would be staying unchanged. Traders correctly interpreted that on Monday and then when the auction amounts were officially released on Wednesday, it was confirmed. So, on Monday it had a little bit of a positive impact on the bond market. On Tuesday morning, there was a little bit of initial volatility surrounding comments regarding Amazon tariffs or the fact that Amazon was listing the tariff impact on prices on its website. Amazon later clarified that it wasn’t really doing that for that part of the website or considering it for that part of the website and Marcus reversed a little bit. It didn’t end up being a lasting impact. Wednesday was a big data day. We had a weaker GDP headline, but there was confusion and a little bit of a misdirection play based on how the negative number occurred. Some people will say it’s due to imports, that’s not exactly right. Net exports are removed from GDP, but there again, it’s an accounting adjustment. So, the more correct way to refer to that would be to say that if all of the imported stuff that we purchased in the quarter were instead made in the US, then GDP would’ve been higher and that is another way to say consumption was actually very good. If we look at one of the line items that economists often look at to gauge that which is final sales to domestic purchasers. That number was 3.0% and right in line with the last reading. Humming along in terms of demand, just an accounting difference making GDP itself move slightly into negative territory. In addition to the GDP data, we also had PCE and it was an uncommon occurrence to have both the quarterly PCE and monthly PCE data on the same day, although not quite at the same time, and that was bond friendly, but didn’t really end up moving the needle in the bond market’s favor very much. For a few reasons. First off PCE is largely able to be determined ahead of time by looking at other reports that feed into it and also this particular month of inflation data is being taken with a grain of salt because traders are waiting to see what the impact of tariffs is going to be and how long that impact is going to stick around and for that same reason, we didn’t really see. The CPI and PPI reports from two weeks earlier have a very big impact on Thursday. That’s when the I-S-M-P-M-I data came out. It wasn’t exactly strong. In fact, it continued to show contraction in the manufacturing sector, but it was less contraction than expected and much less contraction than the quote unquote whisper number, which isn’t really a number that’s logged or written or agreed upon anywhere. It’s just a general sense that traders were prepared for an even weaker number based on warnings in the other data and sentiment surveys that have overstated the consumer’s reaction to tariff related uncertainty. Not that there isn’t a reaction, it’s just not quite as bad as feared. At the same time, prices moved higher, and that’s not good for bonds either and yields began moving up at a faster pace at that point. Then on Friday, the big jobs report higher than expected. Very easy way to trade that one. Yields moving higher. Yet again. MBS moving lower. Pretty straightforward reaction there and in the same vein as ISM, just not as weak as the market was expecting. Revisions were negative but not enough to offset the message from the most current month in the week ahead. We already have the biggest data point in terms of econ data out of the way with ISM non-manufacturing. Once again, a little bit stronger than expected and a little bit of bond market weakness. From here, we move on to the treasury auction cycle over the next three days, as well as the fed announcement on Wednesday afternoon. The Fed’s definitely not cutting rates this time around, so the focus will be on Fed share Powell’s press conference following the announcement itself. That’s gonna 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.