𝗥𝗲𝗰𝗮𝗽 𝗼𝗳 𝗹𝗮𝘀𝘁 𝘄𝗲𝗲𝗸:

Average rates crept a bit higher during the holiday shortened week last week, mainly due to conditions caused by low trading volume in the markets. Unfortunately, we have seen rates move higher now for two weeks in a row, although not by much.

𝗠𝗼𝗿𝘁𝗴𝗮𝗴𝗲 𝗥𝗮𝘁𝗲 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁:

This week we could see mortgage rates improve a bit. Two key standouts this week, December employment data and the minutes from the December FOMC meeting.

Stock indexes improving a little this morning on China’s recovery and resilience in Europe stoked optimism about the global economy. Europe looking for better growth with higher inflation setting up the ECB to increase its base rate in Feb and March in step with the Fed. European Central Bank President Christine Lagarde indicated borrowing costs will increase again, saying this is required to temper soaring consumer-price growth. While such rate aggression comes just as an economic downturn takes hold in the region, LaGarde highlighted that the “recession we feared is likely to be short-lived and shallow,” citing her institution’s most recent forecasts. Just as the Fed is very concerned about wage increases in the US, Lagarde commented “We must not allow inflationary expectations to become de-anchored or wages to have an inflationary effect,”… “We know wages are increasing, probably at a faster pace than expected, but we must be wary that they do not start fueling inflation.”

𝗪𝗵𝗮𝘁’𝘀 𝗮𝗳𝗳𝗲𝗰𝘁𝗶𝗻𝗴 𝗿𝗮𝘁𝗲𝘀 𝘁𝗵𝗶𝘀 𝘄𝗲𝗲𝗸:

These are the three areas that have the greatest ability to impact rates this week. 1) Jobs, 2) The Fed and 3) Geopolitical

• Jobs: We have Big Jobs Friday this week with Non Farm Payrolls, the Unemployment Rate and most importantly, Average Hourly Earnings. Throughout the week we have JOLTS, ADP Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims and internal employment readings in ISM. The jobs data has the potential to have a big effect on rates.
• 2) The Fed: We get the Minutes from the last FOMC meeting on Wednesday. The bond market will be looking for more background/discussion on their economic projections, and their hawkish statement. We are expecting The Fed will increase the FF rate 25 bps by Feb. 1^st.
• 3) Geopolitical: We are seeing more volatility and more of a response in long bonds to the Ukraine war as concerns are increasing over Russian casualties on Russian soil due to attacks launched from Ukraine using American supplied weapons which heightens the potential of direct conflict between the U.S. and Russia. China’s reopening and potential global economic upside vs. their massive spike of Covid is also a big concern.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 100.61, +50bps

The 10yr Treasury yield at 3.77