Treasury auctions and Fed statements will be the primary market movers this week

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Published Date 5/6/2024

Rates began somewhat better this morning after Friday’s decline in yields and MBS prices gained. The April employment report, weaker than expected, boosted the ever-changing idea that the Fed would now be able to think about rate cuts. April unemployment rate increased to 3.9% from 3.8%, NFP jobs increased 175K the lowest job growth in six months with forecasts at 240K. Private jobs were thought to be +190K, reported +167K. Average hourly earnings month/month +0.2% against forecasts of +0.3%, year/year +3.9%, the lowest in three years (estimates +4.0%) and down from 4.1% in March. The labor participation rates unchanged at 62.7%. March NFP jobs revised from 303K to 315K, private jobs in March revised from 232K to 243K. Based on the data the economy is slowing, but caution remains, it was just one month’s data. Futures traders were pricing in two rate cuts before the end of the year, a notable shift from one week ago, when expectations pointed toward one cut, according to the CME’s FedWatch tool.

More importantly the decline on the 10 year note broke a three-week tight trading range. Two weeks ago, the key 10 year note briefly climbed to 4.7% but most of the action was between 4.65% and 4.58%, Friday that tight range broke down to close at 4.52% -6 bps. Early this morning the note began at 4.48% -4 bps from Friday.

The main event this week are treasury auctions, Treasury will auction $12B of notes and bonds. Tuesday $58B 3 year note, Wednesday $42B of new 10 year notes, Thursday $25B of new 30s.

There are at least 10 Fed officials scheduled to speak this week, two today, Richmond Fed’s Barkin, NY Fed’s Williams (he was the one that opened the Pandora's box with his remarks two weeks ago, saying the Fed may have to increase rates, not cutting).

At 9:30 am the DJIA opened +177, NASDQ +66, S&P +22. 10 year note at 9:30 am 4.51% -1 bp. FNMA 6.0 30 year coupon at 9:30 am +1 bp from Friday’s close and -11 bp from 9:30 am Friday, the 6.5 coupon -5 bp from 9:30 am Friday.

Rate outlooks like sitting on a hot skillet; every key data point has the potential of changing outlooks. Friday’s employment report was the softest in five months leading speculation that the economy is cooling and opens the door for Fed cuts. This week other than Fed officials speaking there isn’t any data. The focus will be on the demand for the Treasury auctions, need strong bidding for the 10 year on Wednesday, weak demand will take wind out of the sails for lower rates ahead.

On the initial knee jerk reaction to the weak employment report the 10 year note fell to 4.44% before ending the session at 4.52%. This morning’s opening low on the 10 year note 4.47%, at 10 am 4.50%. Technically the next resistance is 4.43% at the low Friday and at its 40-day average.

This Week’s Economic Calendar:

Tuesday,

1 pm $58B of 3 year notes.

Wednesday,

MBA weekly mortgage applications.

1 pm $42B of new 10 year notes.

Thursday,

8:30 am weekly jobless claims (212K from 208K).

1 pm $25B new 30 year bond.

Friday,

10 am University of Michigan consumer sentiment index (77.0 from 77.2).

2 pm April Treasury budget statement (in March the deficit was -$236.5B).

Source: TBWS

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