MBS Weekly Market Commentary Week Ending 03/06/2020

Yields around the world headed lower last week, as the powerful fixed income rally picked up steam.  The 10-year note ended the week at a new record low yield of 0.76%, dropping by about 38 basis points week/week.  The bond markets were boosted by a 50 basis point rate inter-meeting cut in the Fed Funds target, which sharply boosted pricing in the money markets, highlighted by a 78 basis point drop in the 3-month T-bill rate.  By Friday’s close, the Fed Funds futures market was projecting more than two rate cuts at the 3/18 meeting, while Monday’s oil-driven rally has pushed the futures market to project the possibility of the 0% target rate seen from last 2008 through 2015.

 
 

*The MBS Weekly Market Profile Report corresponds to the commentary below.*

The MBS sector was in flux last week, as UM30 2.5s and 3s lagged their fast-shrinking hedge ratios by a cumulative three-quarters to seven-eighths of a point.  Notably, the UM30 3/2.5 swap collapsed to close at ½ point (a 1-1 coupon multiple) while fuller-coupon conventional swaps actually expanded.  The accompanying chart shows the UM30 3.0/2.5 swap along with the 10-year yield, highlighting the strong correlation that the swap has recently exhibited relative to intermediate Treasury yields. Click to enlarge  Ginnies had a decent week, in part reflecting their fairly beaten-down state, with most Ginnie/Fannie swaps improving modestly.  A fair number of rolls ended the week trading special, reflecting both expectations of a further decline in funding rates and, more importantly, a major surge in back-month supply.

Dealers began to trade Fannie 2s last week, and while the coupon remains illiquid trading volumes did pick up.  The table below show Tradeweb’s markets in the coupon on Friday at various times in the day, highlighting the thinness of the market. Click to enlarge Early in the session, for example, the April TBA was quoted in a 1-tick market while the March and May TBAs had bid/ask spreads of 13 and 18 ticks, respectively.  Later in the day, the March and April TBAs traded to wide markets while May had a 1/32nd bid/ask spread.   While it’s unclear exactly how many 2s are being traded, Bloomberg (which only shows a subset of TRACE volumes) indicated that just over $300mm Fannie 2s traded on Friday, versus trading of over $34 billion and $28 billion of Fannie 3s and 3.5s, respectively.  Liquidity will improve if and when daily volumes exceed around $5 billion, or roughly of 3% of total 30-year conventional volumes.

The fast-moving market continues to make pegging market mortgage rates difficult.  The Freddie Mac Survey rate reported at an all-time low 3.29% last week, but since the market rallied further late in the week the MBA 30-year conventional contract rate (for the week ending 3/6) should report lower.  We’re expecting Wednesday’s application survey to report a rate of around 3.20%, if the long-term relationship between the rate and Treasury yields holds, while a 50% increase in the refi index is highly likely.

 

 

About the Author: Bill Berliner

As Director of Analytics, Bill Berliner is tasked with developing new products and services, enhancing existing solutions, and helping to expand MCT’s footprint as the preeminent industry-leader in secondary marketing capabilities for lenders.

Mr. Berliner boasts more than 30 years of experience in a variety of areas within secondary marketing. He is a seasoned financial professional with extensive knowledge working with fixed income trading and structuring, research and analysis, risk management, and esoteric asset valuation.

Mr. Berliner has also written extensively on mortgages, MBS, and the capital markets. He is the co-author, with Frank Fabozzi and Anand Bhattacharya, of Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques, which was named one of the top ten finance texts in 2007 by RiskBooks. He wrote and edited chapters for The Handbook of Mortgage-Backed Securities, The Handbook of Fixed-Income Securities, Securities Finance, and The Encyclopedia of Financial Models. In addition, Mr. Berliner co-authored papers published in The Journal of Structured Finance and American Securitization. He also wrote the monthly “In My View” column for Asset Securitization Report from 2008-2012.

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.

 

Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

 Join Newsletter or Follow MCT on Social Media:

Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

Sign up for daily mbs market commentary and review previous commentaries by visiting our commentary category page. Join our email list for further MBS market news, subscribe to receive educational articles, whitepapers, relevant updates, and mortgage market commentary. 

MBS Weekly Market Commentary Week Ending 1/27/23

Even with the most aggressive pace of rate hikes in over a generation during the past year, recent data suggests that there’s still a path to a “soft landing” for the Federal Reserve. The U.S. economy posted the kind of mild slowdown in the last quarter of 2022 that the Fed wants to see as it attempts to tame inflation without choking off growth. Gross domestic product beat expectations to rise at a 2.9% annualized pace, down from 3.2% in the third quarter and a long way from a recession.

MBS Weekly Market Commentary Week Ending 1/20/23

Have you heard? Inflation was so 2022. All jokes aside, after we learned last week that U.S. inflation cooled for the sixth consecutive month (the consumer price index dropped 0.1% in December compared to the month prior), expectations are now that the Federal Reserve is likely to downshift rate hikes to 25 BPS going forward, beginning at next month’s FOMC meeting.

MBS Weekly Market Commentary Week Ending 1/13/23

Pay attention to the bond market rather than the Fed. That’s what I’m hearing as we learned this week that inflation continued to ease in December, though much focus was also on Wells’ exit from the correspondent space and its ramifications. The headline CPI (-0.1% month-over-month, +6.5% year-over-year) posted the slowest inflation rate in more than a year and core inflation (+5.7% year-over-year), which excludes food and energy, also posted the smallest advance in a year.

MBS Weekly Market Commentary Week Ending 1/6/23

While it’s back to business as usual, it was a fairly quiet week as we settled into the new year. Fast inflation and high interest rates dominated the narrative and upended markets across the world last year. When the dust settled, 10-year Treasuries were 200+ BPS higher than the start of the year, the curve inverted in a bearish fashion faster and farther than ever, implied volume spiked, and mortgage spreads were pushed from stubbornly rich to suddenly cheap. The result was an entire trade-able universe moving out of the money, originations grinding to a halt, and duration becoming a function of illiquid trade flows.

MBS Weekly Market Commentary Week Ending 12/23/22

MCT would like to wish everyone a Merry Christmas and Happy Holidays. Talk to close the year has been dominated by the Federal Reserve’s most aggressive policy tightening in four decades and its impact on the economy, and for us the residential housing market.