UMBS were down 20 bps to start the day.   S&P futures down 15 pts

Stocks and bonds retreated as traders pause after November’s blockbuster rally and debate the case for interest rate cuts.  The 10-year Treasury yield climbed five basis points to 4.25% while US equity futures posted modest losses. Bitcoin surged past $41,000, while gold briefly touched an all-time high.

A slew of economic reports this week are expected to shed light on the state of the US labor market and whether markets are prematurely excited that softer economic conditions can open the door to Federal Reserve rate cuts.

Soft-landing bets pushed the benchmark 10-year Treasury yield down 60 basis points in November from a 16-year high of 5% the previous month, and brought a gauge of the securities into positive territory for the year. The S&P 500 advanced about 9%, one of its best November rallies in a century.

This week’s economic data calendar will offer looks at the current state of the real economy, with factory orders, ISM and productivity on tap. However, the payroll release on Friday and prepayment speed report on Wednesday afternoon will be the stars of the show for mortgage investors.  For NFP, the Street is looking for an improvement from October’s report with an increase of 180,000 jobs and no change in unemployment. Average hourly earnings are expected to increase to 0.3% MOM and 4.1% YOY.

Federal Reserve officials go under the Cone of Silence prior to the next rate decision on December 13, where it is widely expected for them to sit on their hands for a third FOMC meeting in a row (I agree.) The Fed has sat on its hands for three of the last four FOMC meetings. There will be no Treasury note or bond auctions this week.

On Friday, Jerome Powell made hawkish comments at a speech on Friday which was ignored by the bond market: “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks for an audience at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”

Durable goods inflation has been negative for the past 5 months, which should help on the inflation fight. Part of this is due to used car pricing, which spiked in the aftermath of the pandemic as chip shortages restricted new car production. We are seeing things like appliances get cheaper as well.Services ex-housing is generally service wage inflation, and the increase is evident in things like dining out.

Bonds lost ground to start the new week, but not for any compelling reasons.  If we could even make a case for the weakness being caused by something, we’d be forced to rely on unsatisfying explanations like technical corrections or a leveling off of the prevailing trend ahead of bigger-ticket data.  All that having been said, today was unequivocally a leveling-off of the prevailing trend ahead of bigger ticket data.  The focus is not so much on the 7-8bps of 10yr yield weakness on this data-free day, but rather on the 20-40bps of movement that could be seen in response to economic data and the Fed over the next 7 business days.

UMBS 6.5 closed the day down 20 bps at 101.77

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