UMBS up 5 bps on the morning.  Small but at least it’s green.   S&P futures up 1.75 points.
Calm returned to markets as traders saw positive implications from an inconclusive French election outcome that kept the far right at bay. European stocks rose, and the euro erased earlier losses. S&P 500 contracts were little changed after the index’s biggest weekly advance since April. US Treasuries began the week weaker as traders braced for Fed Chair Jerome Powell’s congressional testimony and US inflation data.

Powell’s testimony on Tuesday and Wednesday will be closely watched, with the Fed likely needing more confirmation that inflation is under control before considering rate cuts. Bonds found their range, recovering from slight overnight weakness, with no major economic reports ahead apart from Powell’s testimony and Thursday’s CPI.

We are seeing for-sale inventory build, however we are still below pre-pandemic levels, according to research from Realtor.com. For-sale inventory rose 35% on a year-over-year basis, however median prices were flat. This might represent a mix shift, as prices rose on price per square foot basis.

While inventory is up 35% YOY, it is still about 35% below 2019 levels. Inventory is getting closer to balance in the South and West, where we saw a building boom over the past few years. Regions which saw muted growth post-2008 (lots of the Northeast and Midwest) are now catching up to the rest of the country.

It was a quintessential summertime Monday to start the new week.  Trading volumes were exceptionally light and volatility wasn’t far behind.  Most of the movement happened right at the 8:20am CME open with Treasuries quickly repairing some incidental overnight damage.  The 9:30am NYSE open saw a quick pop and drop, but from there, it was super sideways for Treasuries and especially MBS.  Both ended the day in effectively unchanged territory vs Friday.  Uneventful days become less likely from here on out due to Treasury auctions, Powell Testimony, but most importantly, Thursday’s CPI data.

Friday’s jobs report was a win for the bigger picture rate trend, but more in the sense that it helped defuse concerns about inexplicable labor market strength in a restrictive monetary environment.  It leaves a very blank canvas for CPI data to set the tone in the coming week.  Data dependence is the only certainty as far as directionality.  In other words, lock/float is a coin toss that waits for big economic reports to call heads/tails.  All we can tell you is that CPI is a high stakes coin.  Between now and then, risk averse clients might consider the tendency for Treasury auction weeks to get off to a rockier start.

UMBS ended the day flat at 100.61