Huge job increases in January sent MBS prices down. This morning it continued. After ending Friday in a pretty good position, we woke up to a big shift in sentiment from traders on the Fed rates through 2023, and a big jump in rates this morning. Bonds opened with big losses as overseas markets had a chance to react to the jobs news and other factors. Before Friday we were looking at conventional rates dropping into the 5’s, but that’s not going to happen now unless we get another big boost from next week’s CPI inflation reading.

Tomorrow Fed chair Powell will sit with David Rubenstein chair at the NY Economic Club for a discussion, after last week’s Federal Open Market Committee and the January increase in jobs there is a lot to talk about. Ahead of that, interest rates and MBSs don’t have much chance of improving. Powell is relentless and will stick with his inflation fight even though the markets are believing the Fed is coming to an end of tightening.

These are the three areas that have the greatest ability to impact rates this week. 1) The Fed, 2) Treasury Sales, and 3) Central Banks

1) The Fed: After last week’s shift, the markets have hedged that the FOMC would need to moderate their policies this year. Now that the FOMC meeting is over, so is the media blackout period among Fed speakers and we will have a slew of them this week.

2) Treasury Sales: While the government attempts yet another debt ceiling raise, the Treasury will conduct three auctions with the most important (for backend pricing) being Thursday’s 30 year bond auction.

3) Central Banks: We get a key interest rate decision out of Australia and we get key speeches out of the Bank of England and the European Central Bank this week.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 100.97, -39bps on the day after being down much worse.

The 10yr Treasury yield at 3.62, a huge jump from the 3.40 we saw just last Thursday.