MBS Live Day Ahead: Limited Econ Data Leaves Focus on Tax Reform Headlines

There isn't much by way of relevant data on the economic calendar this week.  In fact, there are no reports that would ever be considered "top-tier" in terms of market movement potential.  The less important data comes at at a slow pace to boot, with effectively no potential market movers until the very end of the week.

The Treasury auction cycle provides a slightly better chance of inspiring some momentum, but as always, these can be hit and miss.  Of the two alternating cycles of Treasury issuance, this "3, 10, 30" cycle tends to be more relevant for our purposes as it speaks more to the longer end of the yield curve.  Longer-term rates do more to dictate MBS momentum than the shorter average duration of the "2, 5, 7" auction cycle.

But all of the above is small potatoes relative to the potential for tax bill tweaks.  From what we understand, this is the biggest week as far as the House Ways and Means Committee's editing process for the tax bill announced last week.  We know they've already gotten an earful from several lobbying groups (including Realtors and builders on the 500k mortgage deduction cap) and that they aren't opposed to commenting on ongoing developments in interviews throughout the week.

Popular opinion of any announced revisions is likely to dictate the pace for bond markets.  To whatever extent the bill is seen as less likely to pass, the better it would be for bond markets.  Even if a passable bill begins to take shape, the provisions therein could still make a difference.  If the 10yr spending limit is maxed out and if Treasury issuance needs look high (the general assumption since the budget resolution passed in late October), that's a net negative for bond markets.  However, the negative implication would have to be balanced against the fact that we've already done a fair amount of selling in the name of tax reform.

From a purely technical standpoint, bonds momentum is positive on several fronts (certainly more positive than negative).  We'll discuss the technicals in detail in the MBS Live Huddle later today.  MBS Live members can make sure they're receiving the Huddle at this link.