June 18, 2020 - Market Update

Mortgage supply picked up to $7B on the day while demand was tepid. The NY Fed will conduct two purchase operations totaling up to $4.349B starting with $1.372B UMBS15 2% and 2.5% at a 11:50am ET followed by $2.977B UMBS30 2% through 3% at 1:20pm ET.

Yesterday was a duller day in comparison with the action-packed Tuesday. Similar themes dominated as the market weighted the rising caseloads across US states versus the continued Fed liquidity in markets. By the end of the trading session, the S&P 500 snapped its three-day successive gains since last Thursday’s large drop to close down -0.36%. Energy stocks dragged the index lower on the back of lower oil prices. Meanwhile, yields on 10yr US treasuries fell by -1.5bps to 0.738%.

Yesterday Fed Chair Powell gave a testimony before the House Financial Services Committee after speaking in front of the Senate’s counterpart the day before. He stuck to the same general talking points. Additionally, he followed up by stating that the Fed will eventually move away from ETF purchases in lieu of primarily buying corporate bonds.  

In the data front, housing data underwhelmed somewhat yesterday, with the number of housing starts in May coming in at 974k on an annualized basis (vs. 1.1m expected). That said, it does mark a rebound from April’s upwardly revised 934k reading. Building permits also underperformed, rising to 1.220m (vs. 1.245m expected), though again this was a rebound from April’s 1.066m reading.

In terms of the latest on the coronavirus, there was a continued divergence in the health metrics between different US states yesterday. Texas saw the number of hospitalizations rise by 11% in the last 24 hours, while Florida saw the number of cases rise by 3.3% yesterday. Cases in California rose by 3.4%, higher than the 7-day average of 2.1%. On the positive side, New York reported down its fatal cases and the number of patients hospitalized fell below 1,500.

Since QE1’s arrival during the Great Recession, the Fed has guided interest rates by buying bonds and offering forward guidance about when they expect to raise rates. The Fed is now considering adding another tool, yield curve control, where they promise to buy/sell enough bonds to guarantee a given rate for a specific bond duration.

Marks @ 7:30am
2 Year
0.193%
10 Year
0.707%
UMBS 30 2.5%
103-24+
UMBS 15 2.0%
103-02

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