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Thursday, July 29, 2021
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Market Commentary

Updated on July 28, 2021 10:07:46 AM EDT

Yesterday’s 5-year Treasury Note auction was uneventful. The benchmarks showed an average level of interest in the securities compared to other recent sales. Bonds had little reaction to the 1:00 PM ET results, preventing the sale from affecting mortgage pricing. We will repeat this process tomorrow when 7-year Notes are sold.

There is nothing of importance scheduled this morning. Traders are waiting for the results of this week’s FOMC meeting that will adjourn at 2:00 PM ET today. There is almost no possibility of the Fed changing key short-term interest rates at this meeting. The markets will be looking for an indication of what Chairman Powell and friends are considering doing in the future to control inflation and keep the economy growing. Of particular attention will be talk of tapering their current bond buying program.

How the financial and mortgage markets react will depend on what the post-meeting statement shows. A point of concern is that bond traders may be expecting some favorable comments about the economy due to the recent spike in Covid cases. A cautious tone from the Fed should ease concerns that they may act to control inflation sooner than later. This topic is likely to come up in the press conference if not addressed in the post-meeting statement. The concern is that the markets are expecting to hear the Fed is concerned about rising covid cases and consider it a hurdle to the economic recovery. If that is not the case, we may see a strong negative reaction in bonds this afternoon because it seems to be priced-in already.

The meeting adjournment and statement release will occur at 2:00 PM ET and the press conference will start at 2:30 PM ET. It is safe to assume that we will see some market movement mid-afternoon today as a result of this meeting. Look for an update to this report shortly after the markets have an opportunity to react to this afternoon’s Fed events.

In addition to the 7-year Note auction and weekly unemployment figures, we also will get the initial Gross Domestic Product (GDP) reading for the second quarter of the year tomorrow morning. This extremely important report will be previewed in this afternoon’s update.

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