Bonds Remain Defensive Amid More Supply and Less Fed Sponsorship

Bonds Remain Defensive Amid More Supply and Less Fed Sponsorship

June is the month where markets finally have been able to experience the sharp drop in Fed bond buying associated with balance sheet normalization.  MBS purchases have slowed from nearly $40bln last month to just over $10bln in the current month.  The Treasury side of the balance sheet has already been shrinking in June as there haven't been enough proceeds exceeding reinvestment caps to generate any positive flow.  This is likely compounding the inflation fear that continues to serve as a backdrop for recent rate spikes.  Both of those factors reared their ugly heads at yesterday's 5yr Treasury auction.  While it's not on the same level as the 5yr, today's 7yr auction provides another important test of the market's ability to do the heavy listing without the Fed standing by as a spotter.

Market Movement Recap
08:43 AM

Higher oil/stocks overnight + European bond market weakness = moderate weakness in US bonds overnight.  10yr starting out 4bps higher at 3.243 and 4.5 UMBS down just over an eighth of a point.

Latest Video Analysis

Bond Market Defensiveness Proves Justified by Weak Auction.mp4

MBS & Treasury Markets
UMBS 4.5 99.47 -0.14 10YR 3.232% +0.030% 6/28/2022 10:46AM EST
Bonds were initially slightly stronger to start the overnight session, despite a rally in Chinese equities on more covid restriction easing.  European bond market weakness led the reversal at the start of the EU session.  To put the spillover in perspective, German Bund yields are up more than 10bps while US 10s are up only 5 (3.253%). MBS are still trying to settle into a liquid range but are currently down 7 ticks (.22) at 99-13 (99.41).   READ MORE
Today's Mortgage Rates
30YR Fixed 5.88% +0.03% 15YR Fixed 5.26% +0.01% 6/27/2022
Last week was significantly calmer than the previous week for rates (and many other things in the financial market, for that matter).  After hitting the highest levels since 2008 on June 14th, rates lurched lower through last Thursday.  Due to idiosyncrasies in the mortgage bond market, certain scenarios saw some of the best single-day improvements in years, depending on the day. Gains gave way to losses by Thursday afternoon, and a gradual rise has followed. ...   READ MORE
Economic Calendar
Time Event Period Actual Forecast Prior
Tuesday, Jun 28
8:55AM w/e Redbook yy (%) w/e 11.7 12.8
9:00AM Apr Case Shiller Home Prices-20 y/y (% ) Apr +21.2 21.0 21.2
9:00AM Apr CaseShiller 20 mm nsa (%) Apr +2.3 3.1
9:00AM Apr CaseShiller Home Prices m/m (%) Apr +1.8 2.0 2.4
9:00AM Apr FHFA Home Prices y/y (%) Apr 18.8 19.0
9:00AM Apr FHFA Home Price Index m/m (%) Apr 1.6 1.5
10:00AM Jun Rich Fed, services index Jun -7 8
10:00AM Jun Rich Fed comp. index Jun -19 -9
10:00AM Jun Consumer confidence Jun 98.7 100.4 106.4
10:00AM Jun Rich Fed manuf shipments Jun -29 -14
1:00PM 7-Yr Note Auction (bl) 40
Wednesday, Jun 29
7:00AM w/e Mortgage Market Index w/e 320.4
7:00AM w/e MBA Purchase Index w/e 242.8
7:00AM w/e MBA Refi Index w/e 712.7
7:00AM w/e MBA 30-yr mortgage rate (%) w/e 5.98
8:30AM Q1 GDP Final (%) Q1 -1.5 -1.5
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In 2020 and 2021, housing boomed and rates plummeted at a pace that many considered to be unsustainable . 2022's role is to take things back in the other direction.   In other words, things are " normalizing " after a period of frenzied movement.  The normalization process can seem scary in cases where the thing being normalized was exceptionally big, different, and fast.  ... READ MORE