July 17, 2020 - Market Update

Stocks – Stocks edged higher as investors weigh rising coronavirus infections and tension with China against signs of vaccine development and confidence that central banks and governments will initiate another fiscal stimulus. The U.S. confirmed that the number of coronavirus cases has surpassed 3.5 million as more states consider re imposing lockdown measures on places of social gathering such as restaurants, bars, and stores. European Union authorities will meet in person for the first time in five months today to review adding a contentious $850 billion recovery fund to an already planned $1.1 trillion seven-year budget in an effort to lift the region out of the coronavirus crisis.

Treasury – Bond prices opened the morning marginally higher than yesterday’s close, with the 10YR currently yielding 0.61%. This morning, the National Home Builders Association released their monthly report displaying a significant up tick from last month’s number. The report shows a 14 point jump from June, highlighting builder confidence in the market for newly-built single-family homes. The report also notes that demand for new construction is notably rising in suburbs and smaller metro areas as buyers seek larger homes and anticipate more flexibility in working remotely. The report adds to the growing sense of optimism in a full economic recovery from the pandemic.

MBS – Fannie coupons ended the day trailing their 10YR Treasury benchmark yesterday. With the exception of the Fannie 4s, the Fannies lagged by 1-4 ticks. The Ginnies had a similar outing in anticipation of Class C notification today, with G2SF 2s, and 2.5s closing the day 3 ticks behind their benchmark. Dwarf coupons had a mixed performance with 2s closing 2 ticks behind and 3s lagging by 1 tick. Dwarf 2.5s and 3.5s, on the other hand, closed 1 tick ahead of their benchmark. Trading activity increased slightly with $295 billion in aggregate volume, including $30 billion in Specified Pools.