The bond market is ending the week on a positive note after a week of digesting relatively expected inflation releases. The only economic release this morning was the University of Michigan Consumer Sentiment index that came in slightly higher at 69.0 vs. 68.5 forecast. Current Conditions index was 62.9 versus a 61.6 forecast, while Expectations increased to 73. Consumer’s Expectations for 1-year inflation growth was 2.7% vs. 2.8% prior. The 10-year Treasury bond, which was trading as low as 3.62% overnight is currently yielding 3.65%. The 2-year Treasury note continues to yield less than the 10-year and is at 3.58%. Current coupon mortgages are better by approximately 12.5 basis points from yesterday’s pricing levels.
The focus for the market next week is the September FOMC meeting and the Fed’s interest rate decision, which will be announced at 11 pt on Wednesday. After the inflation numbers earlier in the week, the market view seemed to settle on a 25 basis point cut. However, an article in today’s Wall Street Journal reporting the Fed is considering whether to cut 25 basis points, or 50 basis points, has increased the odds of a 50 basis point cut to 40%. While this seems unlikely, it has added to the positive move in bond yields. The market is pricing in 3 rat cuts by the end of the year.
Other than Wednesday’s Fed decision, next week’s economic calendar is relatively light. Monday, we get Sept Empire Manufacturing (-3.7). Tuesday, we will see August’s Retail Sales expected to drop to -.2% from 1.0% and ex autos to drop to .2% from .4%. Also Tuesday, we get August Industrial Production and Capacity Utilization forecast at .1% and 77.9%, respectively. Wednesday’s release is weekly MBA Mortgage Applications, August Housing Starts (5.8%) and Building Permits (1.0%). Thursday, we will see Initial Jobless Claims (231k) and August’s Existing Home Sales (-1.3%, 3.9MM annual).
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