May 13, 2020 - Market Update

Daily originations were reported in the $6.0B-$9.0B range.  The Fed utilized their gunpowder and purchased the maximum allocation ($5B) of MBS across two operations.  This week marks the first time the Fed has bought UM30 2.0%s and similar to Monday, the Fed purchased $240M worth of UM30 2.0%s on Tuesday.  Continued Fed sponsorship in the lower portion of the production coupon stack should drive primary rates lower going forward. 

The MBA Mortgage Application Index released this morning, rose 0.3%, after increasing 0.1% last week.  Refinance applications fell by 3.3% with the average 30yr fixed rate hovering near record lows at 3.43%.  Purchase applications were up 10.6%.  

The risk off sentiment sent investors into safe havens with the benchmark 10yr note rallying 18.5 ticks on the day, yielding 0.66% by 5pm.

Equities closed lower on Tuesday as investors paired gains following a warning from the top U.S. infectious disease expert that premature moves to reopen the economy could lead to further outbreaks and set back the economic recovery.  Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, told Congress that the virus was not yet under control and that there would not likely be a treatment or vaccine in place by late August or early September.  On the other channel, Fed presidents were speaking concurrently and painted a dire outlook if shutdowns continue.  St. Louis President James Bullard warned the public that “you will get business failures on a grand scale and you will be taking risks that you would go into a depression” if shutdowns persist.  Fed Governor, Randal Quarles, was also on the tape eluding to the Fed’s authority to curtail banks’ ability to pay dividends by tinkering with capital ratios financial institutions have to maintain.  By session end, traders ran for the exits with the Dow Jones slipping 457 points to 23,764.  The S&P 500 lost 2.1%, and the Nasdaq Composite fell 189 points to 9,003, snapping a six-session winning streak.

In 20Q1, US GDP fell 4.8% on an annualized basis; 1.2% on a quarterly basis.