UMBS were up 3 bps, on the open.  Stocks up 21.5

The week ahead is pretty data-light, although we will get a lot of Fed-speak. The main number will be consumer sentiment on Friday, which will have the inflation expectations number.

Fed Governor Michelle Bowman said that she thinks last year’s decline in inflation might have been an anomaly, and she is open to another rate hike.

The services sector slipped into contractionary mode in April, according to the ISM Services Index, snapping a 15 month streak of expansion. The decline in the composite index in April is a result of lower business activity, slower new orders growth, faster supplier deliveries and the continued contraction in employment. Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry. The report showed a marked increase in prices, with the diffusion index increasing from 53.4 to 59.2

Without any big ticket events or major news headlines, it was no surprise to see bonds bounce around in a narrower sideways range.  Data-free Mondays are often superfluous when it comes to informing the big picture and today was no exception. It might have been even narrower if not for holiday closures in the overnight session (lower volume and lighter liquidity can increase volatility, all other things being equal).

MBS underperformed Treasuries in a small but obvious way (MBS lost ground while Treasuries improved), but we’re not reading much into that just yet.  This week’s only hope for inspiration is the Treasury auction cycle–at least in terms of scheduled events–and that means we’re probably waiting for May 15th CPI for the next big dose of volatility.

Lower risk and lower reward now that bonds have slid into a lower consequence week.  The calendar is very light and next week’s CPI looms large as a huge potential win or loss (something that should keep bulls and bears from getting too excited in the meantime).  Defensive clients are considering the nice rate sheet improvements over the past 4 days.  Combined with the more sideways outlook, it presents a logical opportunity to circle the wagons.  Risk-tolerant clients are waiting for bonds to do something more threatening before taking chips off the table.

UMBS closed the day down 3 bps at 100.05