Daly Upstages Powell in Today’s Fed Drama

With both Fed Chair Powell and ECB President Lagarde scheduled to speak at the same venue this afternoon, markets were gearing up for the heads of the world’s two biggest central banks to set the tone for the global bond market.  But before the first Powell/Lagarde newswires even hit, San Francisco Fed President Mary Daly gave an interview that got bad balls rolling for bonds.  In fact, even earlier in the morning, comments from a Bank of England (BOE) member gave rising rates a head start.  The end result was substantial selling into the afternoon and a modest recovery after Powell/Lagarde proved uneventful. 

Econ Data / Events

Fed MBS Buying  10am, 11:30am, 1pm

Jobless Claims …….184k vs 180k f’cast, 186k prev Philly Fed Index…… 17.6 vs 21.0 f’cast 27.4 prev
Philly Fed Prices highest since 1979 Philly Fed Employment at record high

Market Movement Recap

08:36 AM Slightly weaker overnight  with most of the selling occurring in the first few hours of Asian trading.  Very flat after that and now rallying back toward unchanged after the weaker Philly Fed print.

10:03 AM Reversal on BOE comments (read more).  Weakest levels of the day now with 10s up almost 6bps to 2.89 and 4.0 UMBS down more than a quarter point.

11:37 AM Additional weakness after Fed’s Daly comments on possibility of 75bp hike.  New highs for 10s (nearly 2.95%).  MBS down 5/8ths of a point. 

02:45 PM Uneventful reaction to Powell speech and Q&A.  Treasuries were at weakest levels beforehand and have recovered slightly afterward.  Still in rough shape with 10s up 9bps at 2.92 and MBS in rougher shape (underperforming) down 3/4 of a point. 

03:26 PM More recovery for Treasuries and even some tracking in MBS.  4.0 coupons are up an eighth from their weakest levels, but still down 5/8ths on the day.  10yr yields are now up “only” 7.2bps at 2.906.  
Source: Mortgage News Daily