July 15, 2020 - Market Update

Stocks – Stocks rallied as new reports indicate progress in developing a vaccine for the coronavirus. Moderna Inc shares surged 15% in early trading as results from a promising trial showed that the vaccine induced the desired immune response for an entire 45-person group of subjects, prompting the company to schedule a clinical trial to start in late July. Coronavirus cases and deaths continue to rise in the U.S. as several states experience new record highs, Florida reported a new single day record of 132 deaths. Tension between the U.S. and China ratcheted further on Tuesday after President Trump signed the Hong Kong Autonomy Act, a bipartisan bill that would impose sanctions on Chinese officials and businesses as a punitive measure against their infringement on Hong Kong’s autonomy.

Treasury – Bond prices are slightly worse this morning with the 10-year U.S. Treasury yield hovering near 0.640%. The MBA mortgage application index rose 5.1% last week after rising 2.2% in the prior week. Refis increased 11.9% in the last week, now making up roughly 64% of all loans. The average FRM 30-year rate was 3.19% for last week. U.S. industrial production posted the strongest monthly gains this morning since 1959; an indication that manufacturing is surging back after coronavirus shutdowns. Total industrial production output increased 5.4% in comparison to a 1.4% increase in May.

MBS – Lower UM30 coupons outperformed the 10YR Treasury yesterday. Both FNCL 2s and 2.5s outperformed the benchmark by 5 and 2 ticks respectively, while higher UM30 coupons tracked it closely. G2SF 2s and 2.5s also performed well, beating the 10YR again by 5 and 2 ticks. Higher G2SF coupons however, continued their rocky performance and closed the day underperforming by 2-4 ticks. FNCI performance was mixed with coupons other than 3 mostly following the 5YR Treasury, while the 3s underperformed by 5 ticks. 5-day cumulative performance of lower FNCL and G2SF coupons has continued to show improvement while higher coupons in those securities are lagging behind. Trading activity contracted a bit with $283 billion exchanging hands yesterday, including $25 billion in Specified Pool trades.