July 20, 2020 - Market Update

Stocks – Stocks opened mixed in light trading as investors assess progress towards another stimulus package and wait for additional earnings reports later in the week. The U.S. reported over 140,300 deaths from the coronavirus pandemic with that number continuing to rise as economists emphasize the importance of containing fresh outbreaks to achieve any significant recovery in the global economy. Lawmakers in Washington have just a few weeks to design new proposals to aid families and businesses as nearly 25 million Americans are set to lose their $600 a week in federal unemployment benefits at the end of the month. Investors will digest more earnings reports as several members of the 500 largest companies in the U.S. will post their earnings this week amid projections of a 44% drop in the second quarter due to widespread lockdown orders during the pandemic.

Treasury – Bond prices remain fairly steady this morning on limited economic news. The 10-year U.S. Treasury is currently yielding 0.61%. Recently released data regarding the CARES Act, which allows for some borrowers to pause mortgage payments who are effected by the recent slowdown, show 4.1 million loans in forbearance as of July 5th according to the Mortgage Bankers Association. The percent of loans in forbearance backed by Fannie Mae and Freddie Mac was about 6%. Roughly 10.5% of Ginnie Mae loans are currently in forbearance. These numbers have declined slightly in the past month or two. The government continues to look at ways to strengthen the economy with many relief programs coming to an end in the coming weeks and months.

MBS – Fannie coupons had a mixed outing on Friday as the lower coupons closed the day 2 ticks behind their 10 Year Treasury benchmark. Fannie 3s to 4.5s saw a slight performance improvement as the they closed a bit ahead of the 10 Year. Ginnie 2s performed well with 3 a tick improvement relative to their basis, while the 2.5s and 3s lagged by 4 and 2 ticks, respectively. Higher Ginnie coupons tracked the benchmark with the exception of the 4s which posted a 4 tick improvement. Fannie 15 Year 2s closed 3 ticks behind, while the rest of the coupons mostly tracked the 5 Year Treasury.  Trading during Class C’s Notification Day culminated with $245 billion exchanging parties across TBAs and Specified Pools.  Spec. Pools made up $23 billion of that total.