• Limited data and events this week to motivate strong momentum
  • broader trend looking like a consolidation pattern
  • first major break out of that pattern could be big

Conventional wisdom held that the Fed's December hike would be merely the first phase in a gradual move toward higher rates across the curve (meaning both shorter term and longer term yields, like 10yr Treasuries and mortgage rates).  With that in mind, it's an interesting turn of events, to say the least, that 10yr yields are roughly 50bps lower than when the Fed hiked in December.

The Fed rate hike outlook is part and parcel of rates' ability to defy expectations.  Markets have gone from seeing 4 hikes in 2016 (as of late last year) to 2 hikes a few months ago to 0-1 hikes today.  Will that trend continue until no one expects the Fed to hike again?  We can't be sure, but markets are definitely trading like it's a possibility.  Yields are in that magical range that they've only occupied during their stints near all-time lows.

In the slightly bigger picture, the question of the Fed rate hike trajectory is akin to the question of the global economy gaining altitude or crashing.  Markets have mirrored the anxious indecision in the form of a massive "triangle"--a technical term for the consolidation pattern with higher lows and lower highs.  If the pattern in the chart holds, we're closer to hitting resistance this week (i.e. a floor in yields).  But the thing about these sorts of consolidation patterns is that the first move after the break is usually a big one.  Each passing day means we're getting closer.  

2016-5-9 consolidation

There is no significant data on tap this week until Friday's Retail Sales report.  But we will get the 3, 10, 30yr series of Treasury auctions.  Data aside, the chart leaves plenty of room for bond markets to be indecisive between now and the June Fed meeting.  My default assumption will be that yields will generally kick around mostly inside the triangle until then.  That means lock/float decisions are more of a tactical, short-term consideration.  

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
102-27 : +0-04
10 YR
1.7680 : -0.0090
Pricing as of 5/9/16 10:07AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, May 10
10:00 Wholesale inventories mm (%) Mar 0.1 -0.5
13:00 3-Yr Note Auction (bl)* 24
Wednesday, May 11
0:00 Roll Date - Fannie Mae 30YR, Freddie Mac 30YR *
7:00 Mortgage Market Index w/e 488.4
13:00 10-yr Note Auction (bl)* 23
Thursday, May 12
8:30 Import prices mm (%)* Apr 0.5 0.2
8:30 Export prices mm (%)* Apr 0.1 0.0
8:30 Initial Jobless Claims (k)* w/e 270 274
13:00 30-Yr Bond Auction (bl)* 15
Friday, May 13
8:30 Retail sales mm (%)* Apr 0.8 -0.4
8:30 U PPI exFood/Energy YY (%) Apr 0.9 1.0
10:00 US U Mich Sentiment Prelim May 90.0 89.0