May 14, 2020 - Market Update

The Fed has two operations where they will focus their allocated $4.875B of MBS purchases on UMBS 15yr 2.0%-2.5%s followed by UMBS 30yr 2.0%-3.0%s.

U.S. treasury yields were lower across the curve, led by the longer dated notes as Chairman Powell distinguished that negative rates were currently not under consideration.  The benchmark 10yr closed 2bps lower at 0.65%.

Wall Street’s three major indexes closed lower for the second day in a row after Fed Chairman Powell warned on Wednesday of extended economic weakness due to the coronavirus pandemic and called for Congress to agree on additional fiscal support.  The declines were broad, with all eleven sectors of the S&P 500 in the red.  Shares of trampled-down airline, energy, and bank stocks were among the biggest decliners.  United Airlines dropped 8.8%, Halliburton fell 8.9%, and Wells Fargo lost 6%.  Tensions between the U.S. and China added to the fears amongst market participants, who worry new frictions between the two largest economies could worsen the global downturn.  By the end of the session, the S&P 500 dropped 1.6%.  The Dow Jones lost 500 pts, or 2.1%, and the Nasdaq Composite slipped 1.5%.

There will also be a quite a number of Fed presidents speaking throughout the day (Minneapolis’s Kashkari at 1pm, Atlanta’s Bostic at 3pm, and Dallas’s Kaplan at 6pm).

US higher education will soon suffer a raft of smaller college closures. This is due to endowments and endowment income being down, sports revenue being nonexistent, and refunds being up due to Covid-19 campus closures. Add in tax revenue declines, forcing university tuition up, thus making college more unaffordable, and fall ‘20 classes likely to be online, pushing enrollments down further.