Despite a weak start, bonds have enjoyed an encouraging rebound in pricing today. Repricing risk remains moderate as the February turbulence has all-but stabilized – yet we are still unable to confidently trust any gains just yet. The best case right now is that rates level off and remain where they currently stand; however, it’s unlikely these levels will improve anytime soon given the lack of supporting factors spilling into March.

The Fed is on a path towards increasingly higher interest rates, evidenced by strong economic data and a booming labor market. Last week’s signs of an economy slowing down have been replaced with optimism, all but guaranteeing further rate hikes soon – leaving us to wonder just how far they will go this time around.

These are the three areas that have the greatest ability to impact rates:

Manufacturing: This week promises to be a crucial one for the manufacturing sector, with an abundance of releases in store. From Durable Goods Orders and Chicago PMI through Non-Farm Productivity and Unit Labor Costs – all eyes will be on how these figures fare compared to their dismal performance over the past three months. Any sign of improvement may prove gloomy news for pricing.

The Fed: The bond market has taken a dramatic turn, with traders anticipating multiple rate hikes that could continue over an extended period of time. This viewpoint was bolstered by the chorus of Federal Reserve officials offering consistent accounts in favor of such action – and this week, three more heavy-hitters are set to weigh in on the discussion.

Overseas News: With the global economy on a rollercoaster ride, major economies around the world are releasing key readings that will determine our future. Inflationary figures from Europe and China, labor numbers across industry sectors and production levels in manufacturing all give us vital clues to what may occur.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 99.84, +19bps on the day.

The 10yr Treasury yield at 3.91