UMBS opened the week up 25 bps in the first hour of trading.  S&P Futures up 7.75 points

Bonds came into the domestic session in fairly good shape with modest overnight gains and 10yr yields just under 4.47.  After drifting sideways to slightly stronger, we’re seeing some more directional movement after the ISM Manufacturing data.  Recent examples have seen a relatively equal reaction to the headline and the inflation component.  Today’s installment is favorable on both fronts and thus an easy trade for the bond market.

S&P Global Manufacturing PMI = 51.3 vs 50.9 f’cast,      [50.0 prev]

ISM Manufacturing PMI = 48.7 vs 49.6 f’cast,    [49.2 prev]

ISM Prices Paid  =  57.0 vs 60.0 f’cast,       [ 60.9 prev]

We are starting to see more evidence that the economy is slowing. The Chicago Business Barometer fell to the lowest level since the May 2020 at the height of the COVID lockdowns. A slowing economy might push the Fed to start thinking about easing, however until we start seeing slowing in the jobs numbers the Fed will probably delay as long as it can.

US Treasuries had a tough time digesting auction supply last week, but have been nothing short of enthusiastic since then.  This isn’t to say the auction cycle was the biggest market mover in the past week.  After all, there were logical reactions to economic data.  Rather, we’re attempting to reconcile the underperformance in MBS at the start of the week.  In addition to the ebbs and flows surrounding the auction cycle, outperformance of the long end of the yield curve also commonly causes a bit of a lag in MBS.  As for today’s data, it was all about ISM Manufacturing which came in with a weaker headline and a lower “prices paid” component.

UMBS closed up 29 bps at 100.42