MBS Weekly Market Commentary Week Ending 08/28/2020

The US yield curve saw a sharp steepening after the Federal Reserve’s dovish statements from Jackson Hole. The plan, as described by Jerome Powell, Chairman of Federal Reserve, shifts the Fed’s focus away from a 2% inflationary target to concentrate on employment shortfalls in the US Labor Market. Implicitly, this move will allow the Fed to take any QE action necessary to support employment and potentially overshoot 2% inflation for periods of time. In short, close attention will be paid to labor statistics and upcoming reports such as the ADP National Employment Report, scheduled to release Wednesday, 9/2. Critics deem the Fed’s shift in policy incredibly dovish and believe the backstopping of companies through buying corporate bonds and other means only delays the inevitable. However, many investors have learned not to fight the Fed and stocks rose sharply as a result.
The US 30-year is currently yielding 1.52%, while the US 10-year’s yield is .74% – both reaching their highest yield since 6/17/20. The 10-year TIPS yield decreased to -1.03%, signaling that while long and intermediate-maturity yields increased in the bond market sell-off on Thursday, inflation continues to hamper real yields on most bonds.

Relative to Treasuries, duration-adjusted performance of mortgage-backed securities improved for 30 and 15-year Fannies last week. Fannie 30-year coupons outperformed the 10-year Treasury by 3-7 ticks on a cumulative 5-day basis. Fannie 15-year coupons improved by 5-9 ticks in their 5-day cumulative totals. Ginnies had a mixed 5-day cumulative performance as the 2s lagged 5 ticks, while performance of the rest of the Ginnie coupons tracked the benchmark or edged slightly above it.

The graph below demonstrates the relationship between September Ginnie 2s and US 10-year. Liquidity in the Ginnie 2s continues to improve as 2s made up 18% of all Ginnie TBA trades on Friday.

For those unfamiliar with using duration-adjusted performance of MBS, duration-adjusted performance is used to calculate the move in MBS prices compared to an expected price change based on the security’s duration – relative to the benchmark duration. The calculation serves to provide a measurable comparison between the performance of an investment in MBS or Treasuries. If the performance of an MBS is said to “outperform” the Treasury benchmark when bonds have rallied, the price of the MBS rallied more than what was expected based on the hedge-ratio calculation of the previous day’s close and vice-versa.

According to MBA’s Weekly Mortgage Applications Survey for the week ending on 8/21, total applications fell by 7.2%. Refinance applications were hit the hardest with a 10.2% drop, while purchases fell only by 1.8%. This drop in refis was almost a certainty due to the 50bp refinance tax levied, then delayed to December 1st, by the FHFA. The FHFA’s second announcement this week extended the timeframe for Fannie and Freddie to buy loans in forbearance. They will now continue to buy loans in forbearance up until a September 30th deadline. The FHFA’s announcements were appreciated by the Mortgage Bankers Association, and they serve to delay an inevitable credit tightening during the current pandemic.

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.

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Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

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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.