MBS are up 14 bps this morning. Stocks up 12.67

It’s a summertime Friday in the bond market, so anything can happen. Bonds could undertake a huge rally or sell-off without any clear connection to anything in the news or calendar. That said, these are just the sorts of eventualities that we’re less surprised to see on a data-free summertime Friday. We don’t go into the day with an elevated expectation for one outcome or another.

A survey of fund managers from Bank of America shows them to be bearish overall and 60% expect weaker global growth going forward. About half think a global recession will hit by Q1 2024. They also see the first Fed rate cut sometime in Q2 of 2024. Note the change in perception between June and July.

Looking back at changes in U.S. unemployment rate data since 1953, a period including 10 recessions, on average the unemployment rate has not noticeably changed during the 12 months leading up to a recession. Once the recession begins, however, the unemployment rate slowly rises and peaks 12 months later at a level three percentage points higher than when the recession began. The unemployment rate is not a leading economic indicator.

Now that the riveting headline has your attention, you may be dismayed to learn that it really was only a boring, placeholder of a day.  Bonds started fairly flat, made some gains at the 8:20am CME open, and then remained fairly flat for the rest of the day.  10yr yields drifted inconsequentially higher whereas MBS might be better described as truly sideways.  Attention has clearly turned toward next week’s Fed rate hike and press conference.  If anything, it’s somewhat reassuring to see bonds forego the urge to capitulate on a summertime Friday following yesterday’s range breakout, but there’s no sense in counting chickens until next Wednesday afternoon at the very earliest.

MBS closed up 8 bps on the day.  Stocks were pretty much flat