MBS Week Ahead: Lighter Data This Week as Markets Position for Fed Next Week


September continues to be an unfriendly month for bonds, marked by an unfriendly trend that has carried yields almost exclusively higher. Some of the weakness can be chalked up to pent up selling demand that was on hold through the end of August, but economic data and supply situation (lots of bonds being issued by the time we count corporate debt) are responsible for the lion’s share of the movement. Case in point, even with trade war fears, geopolitical uncertainty, and the Fed Funds rate rising just as quickly as markets expect, August still managed to offer up the highest readings in years in Manufacturing and Consumer Sentiment. Core inflation may have missed its forecast, but nonetheless remained over the 2% target. Wage growth rose to a post-crisis high in year-over-year terms, and the list goes on. When the economy is churning out those kinds of numbers despite increasingly restrictive monetary policy, it makes sense for rates to continue higher. Our only ray of hope continues to be the ‘oversold’ condition in longer-term momentum in 10yr yields. With the weakness seen early this morning, we’re one step closer to a potential bounce.

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