July 16, 2020 - Market Update

Stocks – Stocks opened lower amid rising coronavirus infections and concerns of the global economy’s recovery from the pandemic. U.S. retail sales exceeded expectations by 7.5% in June, though investors are growing increasingly anxious that further economic recovery could be hindered as states reclose businesses due to surges in new infections. The Shanghai Composite Index declined by 4.5% before the end of trading, its steepest drop since February. Twitter shares fell 2.5% after the social media company experienced the most significant hacking incident in its history. The attack hit an array of prominent figures including CEO’s, politicians, and businesses.

Treasury – Bond prices are slightly improved this morning as treasury yields have decreased in early trading. The 10-year U.S. Treasury is currently yielding 0.600%. Initial jobless claims came in at 1.3 million for the week ending July 11. It marks the 17th straight week of claims totaling at least 1 million. Continuing claims, which includes those receiving benefits for at least two weeks, totaled 17.3 million for the week of July 4. Both show very marginal improvement and reinforce some of the economic headwinds being faced by the Federal Reserve who may have to pivot to longer-term accommodation in the coming months if the economy does not rebound. On the flip side, retail sales rose 7.5% for the month of June with stores re-opening. A pickup in sales was seen in motor vehicle sales, furniture and clothing as many businesses re-opened. June’s increase almost brings retail sales back to pre-pandemic levels.

MBS – UM30 and UM15 securities both outperformed their benchmarks yesterday. Relative performance of the UM30 2s to UM30 4.5s ranged from 1 to 3 ticks stronger than the 10YR Treasury, favoring the lowering coupons. UM15s beat out the 5YR Treasury by 2-3 ticks across the board. G2SF coupons had a mixed session with the 2s ending the day 2 ticks up, while G2SF 2.5s to 4.5s lagged their benchmark by .5 to 5 ticks. Trading activity slowed slightly with a total of $273 billion being exchanged including $28 billion in Specified Pools.