August 3, 2020 - Market Update

Stocks – Stocks opened higher as the U.S. reported it lowest number of new infections in nearly four weeks. A total of 47,000 new coronavirus cases were reported after record numbers of infections were recorded during the month of July. The release of the next economic relief package is still uncertain as Democrats and Republicans did not reach an agreement during weekend negotiations following the expiration of $600 per week unemployment benefits on Friday. Investor concern over tension between Beijing and Washington was heightened following Secretary of State Mike Pompeo’s weekend comments indicating the White House may take action against Chinese software companies. On Sunday, Microsoft announced it would move forward with plans to buy the U.S. operations of the Chinese company, TikTok following a call with President Trump after he alluded to considering a ban of the app on Friday due to concern that it could pass American user data to the Chinese government.

Treasury – Bond pricing is mixed this morning with treasury yields increasing from Friday’s record lows. The 10-year U.S. Treasury is currently yielding 0.567%. The Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 52.8 for July, marking its third straight month of expansion. China showed the highest manufacturing expansion in over a decade as manufacturing re-opened. Globally, stocks have made some recovery over the past 4 months, trimming some of the lag behind bonds. Many are focused on the upcoming jobs report Friday as Congress debates a second stimulus package this week that could assist the millions of Americans currently out of work.

MBS – Fannie 30 Year coupons saw a strong performance on Friday with the 2s, 2.5s, and 3s closing 7, 4, and 3 ticks up, respectively. Higher Fannie coupons tracked the Treasury’s movement. Lower Ginnie coupons outperformed the Treasury by 2-5 ticks, while higher Ginnie coupons also tracked the benchmark. Similarly, lower Fannie 15 year coupons outperformed the 5 Year Treasury while the higher coupons saw little change with respect to relative performance.