May 29, 2020 - Market Update

Treasury supply and record mortgage originations continue to put pressure on bond prices.  FedTrade purchases continue to buy an average of $4.5B per day.  Mortgage originations remain strong with dealers reporting $7-8B per day on average.  More than 25% of 30y origination flows are in UMBS 2.0’s.  The FedTrade will buy up to a maximum of ~$4.77B in current coupon FNCL and G2SF securities.

The risk on momentum propelling global stocks higher paused yesterday after President Trump announced that he would hold a press conference to discuss the administration’s plans to address China’s new national security legislation.  Investors turned bearish on concerns that the growing U.S./China tensions may impact global markets if rhetoric turns to action.  In the U.S., the Dow fell -147 points (-0.58%), which dropped the weekly gains to +935 points (+3.82%).  The S&P also fell -6.4 points (-0.21%).  

Continuing jobless claims fell to 21,052k from the prior period’s 25,073k, suggesting the job market is showing signs of a recovery.  Initial claims however still continue to run high but met analysts’ expectations.

Surprisingly, healthcare was responsible for almost half of the 5% seasonally adjusted annual rate of decline in 20Q1 GDP, despite the Sars-Cov-2 pandemic. Turns out 1.5 million healthcare workers lost jobs in Q1 because hospital and doctors’ office revenues collapsed. Why? Because health insurance pays for procedures and generally not for outcomes. With hospitals full of low reimbursement Covid-19 patients, lucrative elective surgeries like knee replacements are not happening.