[Matt] This is Matt Graham, with the MBS Live Market Update. Last week was holiday shortened as Monday was closed for Memorial Day. Bond traders got into the office and immediately began selling bonds, making it for a very volatile start to an otherwise fairly uninspired week in terms of scheduled data and events, there were several market movers out of the gate on Tuesday morning, including Treasury auctions and fed speakers. Those combined to push 10 year yields up to roughly 4.55 after breaking up and out of the 4.34 to 4.5 range that had been intact for the previous two weeks. The following day, on Wednesday, the seven year Treasury auction added some insult to injury, but the momentum was already in place from the overnight session, and there was a sense that the bond market was simply playing it extra safe or extra cautious or extra defensive through the Treasury auction process, and that's something that can sometimes connote a little bit of a bounce in a friendly direction after the auction cycle wraps up. Indeed, that proved to be the case. Whether it was the reason for it being the case or not is impossible to say. But in any event, Thursday saw stronger momentum, with bonds erasing all of Wednesday's losses and then some there were some market movers in play that morning, including the GDP data. It was not the GDP headline itself. This was just a revision to the previous month, and it came in right in line with the 1.3 that was initially reported. But corporate profits and final sales were revised lower, and quarterly PCE prices, that's the price index that initially hurt us last month, was revised another 10th of a percent lower, and that implies softer inflation than initially reported in the q1 data, as is typically the case when GDP comes out, we will get the PCE price index in the monthly flavor the following day. That was the case on Friday morning, and it came in at a 0.2 versus 0.3 forecast at the core level, 0.2 is a good number to be at, because that's what that series will be reading when the core PCE in annual terms, hits the Fed's 2% target. Point one, seven would be the unrounded underlying number, and that rounds up to 0.2, so if you look back at the previous decade plus of 2% inflation, we had readings of point ones and point twos for the most part. That was well received by the bond market, but notably, it was the highest possible reading that could still be rounded to a 0.2 level. So essentially, it was just a slightly lower than expected on target reading, more than it was a true beat. But I'm splitting hairs. The bond market liked it. There was an additional rally on Friday. It was early and then stable, and it took us in to the new week in decent territory, modest overnight gains, and now this morning, we have ISM manufacturing getting The week kicked off in much stronger fashion. Ism came out weaker than expected, and the prices paid component was also three points weaker than expected. Bonds reacted immediately with solid volume and a big drop in 10 year yields from 4.45 all the way down to 4.40 and change, MBS are up nearly three eighths of a point rate sheets are coming out much stronger than they were last week, and there is at least at the moment, some semblance of hope for the bond market, looking back at April and May and seeing recent highs in the rear view mirror, making progress down from that however, it's important to note that progress depends entirely on how the economic data comes in during the rest of this week. This was not the most important report of the week. That will be Friday's jobs report, but even in the interim, things like ISM services on Wednesday and job openings tomorrow probably pack a bit more of a punch than this morning's ism data that's going to do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
