July 13, 2020 - Market Update

Stocks – Stocks opened higher as investors prepare for U.S. companies to report earning this week and preview the impact of the coronavirus pandemic. Economists agree that the second quarter ending in June was likely the worst of the downturn, however speculation still looms on the total extent of the damage. During the past week, thirty-two states recorded increases of at least 10% in new cases, prompting renewed restrictions on business and social gathering. Florida posted the largest one day rise in infections since the pandemic began reporting 15,300 new cases on Sunday.

Treasury – Bond prices started lower as equities rose on anticipation of this week’s earnings reports. The yield on the 10-year U.S. Treasury is 0.660%. Earnings season is kicking off for a handful of banks with many trading at or near their lowest to S&P 500 since 2009. The U.S. Treasury’s Monthly Budget Statement will be released this afternoon. The government is on track to issue nearly $5 trillion in net new debt in 2020 to fill an ever-increasing budget gap. Domestic investment in treasury bills has been on the rise as foreign demand has plateaued in recent years.

MBS – Most tradeable MBS lagged their Treasury hedge ratios on Friday, as Treasuries sold off and the curve steepened. 30-year Fannie 2s through 3s underperformed the 10-year by 2-3 ticks, although 3.5s and higher managed to track or outpace 10s. Ginnies had a similar session, with GNII 2.5s lagging the 10-year by 5/32s while 3s managed to track the Treasury and 3.5s and 4s outperformed modestly. 15-year Fannies had a rough day, trailing the 5-year note by as much as 5/32s. Trading remained active, with over $340 billion in total activity including $29.7 billion in specified pools.