This is Matt Graham with the MBS Live Market update. Last week ended fairly uneventfully, but it began with some drama as the bond market broke out of its recently narrow trading range. The breakout could be argued to have been underway as early as the previous Friday, but it became very apparent on Tuesday morning. The range in question involved 10 year yields between 4.1 and 4.2 that had persisted for about a month, or you could go back four months and call it 4.0 to 4.2. Either way, what we’re concerned with is the breakout of the ceiling. What caused it in a nutshell, it was debatable, but it was most easily tied to geopolitical tension surrounding Greenland. Most of the news focused on drama in the Japanese government bond market owing to fiscal developments and a major spike in Japanese bond yields on Monday and Tuesday. That said, treasury futures were open on Monday, even though the broader bond market was closed for the holiday, and there was no major volume spike in treasury futures or major market movement when Japanese government bonds were surging toward higher yields. Instead, what we saw was a pickup in volume and volatility when the European market opened at 2:00 AM on Tuesday morning, and then by far and away the biggest volume spike of the day. When a Danish pension fund announced their exit from US Treasuries on Tuesday morning, this was proved positive that it was the geopolitical drama, and specifically the threat of tariffs and retaliatory tariffs that was driving bond yields higher. The following day, Trump announced a framework of a deal and also that the. Planned tariffs on the European Union would not be going to into effect as previously scheduled, and that helped the bond market recover fairly swiftly. That said, the headline was more interesting than the details of which there were very few. In fact, several European leaders commented that there was no new agreement and no new plan in place despite. Trump saying a framework of a deal was in place, but all the bond market cared about was the fact that tariff escalation was not happening last week and looked like it would not be happening in general, and the rest of the week’s bond market movement fizzled fairly sideways and slightly stronger by a Friday afternoon was that a factor of the economic data? Not really. The econ data was very uneventful, very stale, and didn’t have a visible impact. When it came out. Thursday seemed like it would’ve been a big day for data because there was a GDP release and two separate releases of PCE inflation. It’s often said that PCE is the fed’s preferred gauge of inflation, so it should be a big market mover, but in practice, even when we’re not dealing with stale data, it is very easy for forecasters to nail that number because CPI and PPI to other inflation reports that come out two weeks before PCE, help forecasters determine many of the underlying components in PCE. Top that all off with the fact that. These PCE releases were for November and October, and you had very stale data coming in, right in line with expectations. All in all, not a big market mover. Friday’s data was also uneventful with s and p’s, PMMI and consumer sentiment. They were fairly close to forecast and didn’t garner a big reaction in treasuries or MBS. In general. MBS continued to outperform thanks to the recent boost they got. From the planned buying of $200 billion of MBS by Fannie and Freddie, but we will not get a schedule of that the same way we would get it from the Fed when they did qe, and that’s by design. So, the markets tightening episodes will be reserved. For actual episodes of MBS purchases and the market won’t know when they’re, those are coming until they actually arrive. The present week is not much better for econ data or calendar events. We do have the fed on Wednesday. They will not be cutting rates. They probably can’t say too much or do anything. That is very interesting to the bond market at this meeting. The more interesting development on Wednesday, it could be that the administration will take the opportunity to announce the next fed share and the market could react to that. The only arguable relevant data this week is PPI on Friday, the producer Price Index. This is actually for December, making it the most timely inflation report next to CPI, which has already come out for December. And it will help traders get a sense of where PCE will come out early in March because we won’t get it on time until. April, the government is still getting caught up with economic data after the government shut down, if 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 MBS Live!
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.