The MBS market improved by +73 bps last week. This was enough to decrease mortgage rates or fees. The improvement happened after Friday’s jobs data showed job growth came in better than expected while wage gains came in lower, and the ISM services gauge unexpectedly shrank signaling economic contraction.

𝗪𝗵𝗮𝘁’𝘀 𝗮𝗳𝗳𝗲𝗰𝘁𝗶𝗻𝗴 𝗿𝗮𝘁𝗲𝘀 𝘁𝗵𝗶𝘀 𝘄𝗲𝗲𝗸:

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

1) The Fed: Last week’s Minutes made it clear that the Fed is frustrated that the markets are NOT buying their message (and are actually hedging against it). This week we have a ton of speeches and it will be interesting to see if the collective message remains the same or if we start to see some cracks in their resolve. Here is a schedule for this week:

01/09 Bostic

01/10 Fed Chair Powell

01/11 Atlanta Fed Business Inflation Expectations

01/12 Harker, Bullard, Barkin and the Fed’s Balance Sheet

2) Inflation: On Thursday we get the most important economic release of the week with the Consumer Price Index. Market Expectations are that we will actually see a decrease in the headline MOM reading. The weaker this data is, the better it is for rates. We also get Import/Export Prices on Friday which is also an inflationary data point.

3) Treasury Sales: The following is this week’s schedule with Thursday’s 30 year bond auction as being the most important of the week for rates.

01/10 3 year note

01/11 10 year note

01/12 30 year bond.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 101.44, +20bs after a weak start from overnight trading. Momentum clearly on our side, but we could see mortgage bonds cap out around 101.69, which was the high point we saw them hit back on December 2nd.

The 10yr Treasury yield at 3.58, with plenty of room to improve before hitting December’s best levels around 3.43.