This is Matt Graham with the MBS Live Market Update. Last week brought the typical level of holiday week volatility. Specifically. We often see bonds make random moves of various sizes on Thanksgiving week only to do something completely different in the following week. Unfortunately, that means that we’re moving back toward higher yields this morning, but fortunately, that leaves us right in line with where the prevailing range had been heading into Thanksgiving week. Nonetheless, when 10 year yields are up over seven bips and MBS are down a quarter point. People want a scapegoat, and that has been provided via overnight news regarding the Bank of Japan considering potentially hiking rates at its next meeting. The bond market also has some painful memories of big news from. The Bank of Japan having a big impact on the US bond market. So with this being the only news available to blame, it is obviously getting the blame, but it’s debatable how much of the blame it actually deserves. For instance, if Japanese news was moving the US Bond market, we would typically see a fairly strong correlation between US dollar and yen for taxpayers and US bond yields. But in today’s case, we saw a big move overnight in Yen and a fairly flat move in treasuries all the way until just after 8:00 AM domestic time. This isn’t a case of US traders being asleep because stock futures were perfectly capable of following the move in dollar. Maybe bond traders were just waiting to sell this news for other reasons. If that were the case, we would see stronger correlation between US bond markets and European bond markets. But the latter actually did sell off more in the overnight session, even while US treasury yields remain fairly flat. All that to say, while the Japanese. It certainly is impacting some traders’ decisions to sell bonds this morning. It could just as easily be explained, perhaps fully explained by new month, new week volatility, and a return to the proverbial office after Thanksgiving week, holiday related volatility. Looking ahead, we have several key reports this week. The first one could have happened this morning in the form of ISM manufacturing, but it did not end up moving bonds. Probably because it came in fairly close to consensus at 48.2 versus 48.6 tomorrow. Not too many reports, in fact, none of note. But on Wednesday, we’ll get the monthly A DP employment data, as well as the more important of the two ISM reports in the form of non-manufacturing PMI. Thursday with us, as always, is the weekly jobless claims numbers, and then on Friday. Most notable development is the absence of the jobs report, the big employment situation, which gives us non-farm payrolls and the unemployment rate. This isn’t new news as of this week. We already knew this would be rescheduled for December 16th, and we already knew that would be notable because that means it will occur after the Fed announcement that comes out next week. This means the Fed is to some extent flying blind by not having a full complement of economic data. But the market feels that the Fed has enough to be able to cut rates at next week’s meeting and odds. For that, or rather, the probability of that is currently running over 80% and it hasn’t changed much since the beginning of last week. Just before that, it was comments from Feds Waller and especially New York Fed President Williams that and for the most notable improvement in fed rate cut expectations. 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.