Light Data Week but Heavy on Fed Speak

  • The week is light on economic data but heavy on more Fed speak. The microphones have already been turned on this morning and Atlanta Fed President Raphael Bostic was first out of the gate with several statements that sent Treasury yields immediately higher. First, he noted the Fed needed to get the funds rate to neutral as fast as possible, and he defined neutral as around 2.25%. He did mention that he favored six 25bps rate hikes this hear and two more in 2023, so just slightly under the latest median expectations.

 

  • Fed Chair Powell speaks at noon today so expect more headlines from that, but it would be surprising if his comments deviated from his statements last week following the FOMC meeting.

 

  • Plenty of other Fed officials will be speaking during the week, with the always headline-seeking St. Louis Fed President James Bullard on Wednesday. The trend lately seems to be who can appear the most hawkish on inflation so expect that to continue which could keep pressure on Treasury prices.

 

  • Meanwhile, the war in Ukraine continues with no genuine prospects for a peace deal. The Russians, however, want the Ukrainians to lay down arms in the besieged city of Mariupol and abandon it, but as  you may have guessed, the Ukrainians have refused that demand. This siege strategy, however, does speak to the brutal nature of what may be to come for both Kyiv and the key Black Sea port city of Odessa, which has largely gone untouched so far. Absent a peace deal, this siege strategy hints at a long, bloody continuation of the conflict with continuing headwinds to inflation and global growth.

 

  • As we mentioned, economic data is light this week with a pair of housing reports, New Home Sales and Pending Home Sales for February probably the most interesting. Both are expected to post slight gains in sales activity over January. It will be interesting to see how the housing data reacts to the recent run-up in mortgage rates. At the beginning of the year, the average 30-year mortgage rate was 3.27% and is now 4.55% (see graph below). Historically, that is still a low rate but a nearly 130bps increase will definitely be felt in the mortgage payment. To date, the mortgage rate increase hasn’t dented housing activity but that will be something to watch, especially if the rate continues higher.
Bankrate Average 30-year Mortgage Rate

 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.04 2.30 2.38 2.52 2.77 3.23
0.50 2.02 2.27 2.32 2.41 2.63 3.12
1.00 2.01 2.24 2.29 2.37 2.54 2.99
2.00 2.23 2.23 2.29 2.42 NA
3.00 2.24 2.36 NA
4.00 2.31 NA
5.00 2.28 NA
10.00 NA

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Tags: Published: 03/21/22 by Thomas R. Fitzgerald