Data Didn’t Hurt, But Bonds Underperformed The Oil Price Recovery

Today’s headline is somewhat misleading. It points out the fact that oil prices made it back to yesterday’s lows whereas bond yields didn’t even come close. This is all true, assuming we’re looking at front month oil prices. But if we use a longer-term futures contract for oil, the correlation with bonds was actually closer to 1:1. Either way, the bond rally only unwound a fraction of yesterday’s losses and that’s especially true for MBS (5.0 coupons lost half a point yesterday, but regained less than a quarter point today). Econ data didn’t hurt, but it didn’t exactly help either. ISM and Job Openings were both very close to consensus.

Econ Data / Events

Trade Gap (Mar)

-60.30B vs $-60.9B f’cast, $-57.3B prev

S&P Global Services PMI (Apr)

51.0 vs 51.3 f’cast, 49.8 prev

ISM Biz Activity (Apr)

55.9 vs — f’cast, 53.9 prev

ISM N-Mfg PMI (Apr)

53.6 vs 53.7 f’cast, 54.0 prev

ISM Services Employment (Apr)

48.0 vs — f’cast, 45.2 prev

ISM Services New Orders (Apr)

53.5 vs — f’cast, 60.6 prev

ISM Services Prices (Apr)

70.7 vs — f’cast, 70.7 prev

New Home Sales (Mar)

682K vs 0.65M f’cast, 587K prev

USA JOLTS Job Openings (Mar)

6.866M vs 6.84M f’cast, 6.882M prev

Market Movement Recap

09:04 AM Modestly stronger overnight with bonds following oil prices. 10yr down 1.5bps at 4.422 and MBS up an eighth.

10:08 AM Slightly stronger after 10am data. MBS up 5 ticks (.16) and 10yr down 2.7bps at 4.41

12:14 PM best levels of the day. 10yr down 3.2bps at 4.406 and MBS up a quarter point.

02:42 PM Off best levels. MBS up 5 ticks (.16) and 10yr down 2bps at 4.419

After hitting the highest yields in more than a month yesterday, bonds have managed to pick up a few bps. The bulk of the recovery was already in place by yesterday’s close, but yields dropped another 2bps after war-related headlines just after 8am (US general said Iran’s attacks yesterday were below the threshold for war). Oil prices and bond yields continue the same old correlation. 

Coming up at 10am ET, we’ll get 2 economic reports that have historically been capable market movers: Job Openings and ISM Services. We’ve seen some evidence that the market is still willing to react to data if it’s far enough from expectations, but that risk is a bit asymmetric at present. Reason being: investors are waiting for economic weakness to show up due to high fuel prices. So it doesn’t take as much of an upside surprise in the data to cause bond market weakness. Conversely, if data is slightly weaker than expected, that would be less of a surprise to most investors and thus not as much of a benefit to bonds.

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Markets Hit by Glut of Escalation Headlines

Monday’s trading session ended up being as simple as it was unpleasant. Bonds lost ground somewhat sharply as war-related headlines kept adding up to additional escalation. Highlights include overnight reports of Iran hitting a U.S. warship with missiles, multiple reports of UAE air defenses being activated, and damage/fire at a UAE oil export terminal. While bonds had a few moments of independence, they were broadly driven by rising oil prices associated with the aforementioned headlines.

Econ Data / Events

ISM Manufacturing Employment (Apr)

46.4 vs 49 f’cast, 48.7 prev

ISM Manufacturing PMI (Apr)

52.7 vs 53 f’cast, 52.7 prev

ISM Mfg Prices Paid (Apr)

84.6 vs 80 f’cast, 78.3 prev

Market Movement Recap

09:20 AM moderately weaker overnight. 10yr up 3.5bps at 4.41 and MBS down 7 ticks (.22).

11:31 AM Weakest levels after headlines regarding Iran attacking UAE. MBS down 3/8ths and 10yr up 6bps at 4.435

02:23 PM sideways just off weakest levels. MBS down half a point and 10yr up 7.1bps at 4.447

Mordor Intelligence expects the manufactured homes market size to expand from $28.5 billion in 2025 to $30.5 billion this year, its latest report found.