April 21, 2020 - Market Update

MBS has been sliding since prices peaked on April 9^th.  Since then, daily fixed rate origination has continued to flood the market (biggest driver of performance), as the Fed pulled back its MBS purchase operations, and economic uncertainty weighing down on demand.  These factors combine to apply downward pressure on mortgage prices, which we saw yesterday.  For perspective, the UMBS 30yr 2.5 for May settle closed at 104-14 on April 9^th vs yesterday’s close of 103-16+, almost a full point lower.  On the supply front, fixed rate originations have been averaging $7.4B a day over the past 5 days, surpassing $8B yesterday.  Over the last week, originations have been consistently in a $5-8B range.

Equities landed in the red across all major indices yesterday, mainly driven by crude having its way with headlines. In a move without precedent, the price of a barrel of West Texas Intermediate crude for May delivery closed at -$37.63 because there is simply no place to put it.  This is down -159% from 1/6/2020 close.  Producers are literally paying buyers to take the oil! June WTI is selling for $20.43/bbl and November for $31.66/bbl as traders expect demand to steadily rise as the economy improves and supply to shrink as wells are shut in.

In between the crude-craze was some mixed headlines on covid-19 related topics: stimulus packages, timelines on reopening certain states, and revamping testing capabilities.  The Dow gave up some of the gains seen last week, closing -592.05 points lower (-2.44%).

Treasury yields are almost unchanged with the 10yr at .58% and the 30yr at 1.17%.