Market Update,Thursday, April 30, 2020
Yesterday’s FOMC policy statement confirmed there are no plans to end the Fed trade purchase ops of MBS and treasuries in the near-term. Following the meeting, treasuries experienced a modest steepening of the curve and ended the day mixed. The 2yr yield declined (-0.01) to 0.20% while the 10yr yield rose (+0.02) to 0.63%.
Mortgages experienced another solid day on Wednesday, with the best performance coming from the 3.5% coupon. Origination flows spiked to $8.58B for the day and the 5-day moving average rose to $7.49B accordingly.
Market Update,Wednesday, April 29, 2020
Today’s economic calendar kicked off with MBA mortgage applications for the week ending April 24th , which posted a decline of -3.3% from the prior week. Purchases were actually up 11.6% week-over-week, but refis saw a -7.3% drop.
Treasuries reversed course on Tuesday and saw a bull flattening of the yield curve in advance of today’s Fed policy meeting. The 2yr yield was marginally lower (-0.01) at 0.21% while the 10yr yield dropped (-0.05) to 0.61%.
Market Update,Tuesday, April 28, 2020
The Federal Housing Finance Agency announced yesterday that borrowers will not be required to make lump-sum repayments at the end of the forbearance period for loans purchased by Fannie Mae and Freddie Mac. FHFA Director Mark Calabria stated, “During this national health emergency, no one should be worried about losing their home… while today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”
Market Update,Monday, April 27, 2020
Treasuries ended the day little-changed as demand remained consistent. Friday closed with the 10yr yield flat at 0.60% and the 2yr yield slightly up (+0.01) at 0.22%.
Mortgages had a strong start to the day with early out performance but began to fade relative to treasuries in the afternoon. The last Fed auction of the day was oversubscribed to the point that it hurt performance. Not long afterwards, this week’s Fed Ops schedule was released, with the maximum daily MBS purchases declining to roughly $8 billion.
Market Update,Friday, April 24, 2020
The market didn’t react all that much to any of yesterday’s news headlines or economic/earnings data. The prevailing 30yr fixed rate has been hovering around 3.25-3.375% and started to move away from the top end of that range yesterday. This caused the primary/secondary spread to compress into the 150-160bp range. This is a big difference from where the spread was on March 9th when primary rates were still in the 3.5-4% range and the implied secondary market rate for MBS plummeted (prices sank too), widening the spread out to >200bps.
Market Update, Thursday, April 23, 2020
Solid earnings in the morning sparked the rally in risk assets and it gradually picked up momentum throughout the day. Snapchat, Chipotle, and Texas Instruments were a few of the companies making headlines. Crude continues to rebound after a rocky start to the week. It’s interesting because the rally in crude (+37%) was driven by President Trump instructing the U.S. Navy to destroy Iranian gunboats if they harass American ships. The market is betting on friction in the Middle East to help undercut the oil glut. This should shed some light on how misaligned supply and demand are in oil right now.
Market Update, Wednesday, April 22, 2020
Mortgage applications decreased 0.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 17, 2020. The Refinance Index decreased 1% from the previous week and was 225% higher than the same week one year ago. The Purchase Index increased 2% from one week earlier. The FHA share of total applications increased to 10.3% from 9.5% the week prior. The VA share of total applications decreased to 13.8% from 14.3% the week prior. The USDA share of total applications remained unchanged from 0.4% the week prior.
Market Update, Tuesday, April 21, 2020
MBS has been sliding since prices peaked on April 9th. Since then, daily fixed rate origination has continued to flood the market (biggest driver of performance), as the Fed pulled back its MBS purchase operations, and economic uncertainty weighing down on demand. These factors combine to apply downward pressure on mortgage prices, which we saw yesterday. For perspective, the UMBS 30yr 2.5 for May settle closed at 104-14 on April 9th vs yesterday’s close of 103-16+, almost a full point lower. On the supply front, fixed rate originations have been averaging $7.4B a day over the past 5 days, surpassing $8B yesterday. Over the last week, originations have been consistently in a $5-8B range.
Announcement: Non-QM Updates
Non-QM Guidelines have changed effective 4/21/20
Market Update, Monday, April 20, 2020
The Fed purchased $14.5B of MBS on Friday: $3B of FN 15yr (2.5s/3s), $7.5B of FN 30yr (2.5s/3.5s), and $4B of GN2 30yr (2.5s, 3.5s, 4.5s). This wraps up another week of the Fed’s agency MBS purchase operations, totaling $68B. The Fed’s mortgage purchases fell to $15B/day last week from $30B/day the week prior. This week, as announced Friday afternoon, the Fed will be updating its bond buying schedule again by reducing mortgage purchases to $10B/day. Treasury purchases will also be modified to $15B/day from $30B/day last week.