April 14, 2020 - Market Update

Yesterday, origination flows were very much on the heavier side due to an overhang of supply coming out of the holiday weekend and as the sell-off in dollar prices compelled hedgers to add coverage.  Total new hedges for the day totaled about $7.7B, which is $3B higher than the recent 5-day average.  As far as Fed support, on Friday they announced that the max size of their daily agency MBS auctions would be reduced to $15B.  Yesterday, the Fed purchased $12B of MBS ($9.5B FN / $2.5B GN), which was down from the $18.1B of agency MBS demand they added to the market on Thursday.  Since this round of QE’s inception in mid-March the Fed has purchased $458B. 

On the origination side, there continues to be a very wide range of 30yr refi rates being posted on lenders’ rate sheets.  The wide range is being driven by the market volatility and lender’s capacity.  Refinance rates seem to be posted in the 3.125-3.625% range. 

This morning, treasuries are trading higher across the curve ahead of the day’s activity.  Currently, the 2yr is +0.625/32 (0.239) and the 10yr is +4+/32 (0.755). 

In the first half of FY20, the deficit was $746.6 billion, up 7.6% compared to the same period in FY19; the 8th largest deficit/GDP ratio since 1947. Tax receipts were up 6% to $1.604 trillion, outlays rose by 7% to $2.347. Even in a good economy, the deficit was huge and growing. In FY2020, the deficit will exceed $3 trillion, pushing debt held by the public to 100% of GDP.