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Examples of Mortgage Capital Trading Daily Market Commentary

Previous Weekly MBS Market Commentaries

MBS Weekly Market Commentary Week Ending 1/31/20

Treasury yields plunged last week amid fears that the fast-spreading coronavirus would disrupt global trade and economic activity. With U.S. equities off by about 2.5%, the 10-year yield dropped by almost 18 basis points to end the week at 1.508%, breaching its early October lows and getting within 5 basis points of the late-summer trough. While yields for coupon-paying securities declined pretty much in unison, Treasury bill rates actually rose slightly, leaving the 3mo/10-year spread slightly inverted even though the 2/10-year spread closed roughly unchanged. Despite the Fed’s fairly neutral statement after their Open Markets Committee meeting on the 29th, the Fed Funds futures market is currently projecting a 25 basis point rate cut by as early as the June or July meetings, and two easings by the end of 2020.

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MBS Weekly Market Commentary Week Ending 1/27/20

Treasury yields dropped last week, as concerns about the spread of the coronavirus and its economic impact grew. The yield on the 10-year note declined by about 14 basis points from the prior Friday to yield 1.685%, with the rally concentrated in intermediate and long maturities. This left the yield curve markedly flatter, with the 3mo/10yr and 2-10yr spreads narrower by 11 and 7 basis points, respectively. The rally also took other sovereign yields lower; the German and French 10-year notes both experienced 12 basis points declines, the latter reaching negative territory for the first time since early December, as highlighted by the accompanying chart.

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MBS Weekly Market Commentary Week Ending 1/3/20

The targeted killing of a key Iranian general put a stop to the bearish steepening that prevailed through much of December. Friday’s rally pushed the yield on the 10-year note to its lowest level in a month, closing at 1.78% after printing as high as 1.93% over the holiday period. The yield curve (i.e., 2-10s) ended the week about 3 basis points flatter at +26 after reaching as high as +34 on New Year’s Eve, its steepest level since the summer of 2018.

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MBS Weekly Market Commentary Week Ending 12/20/19

Intermediate and long Treasury yields backed up last week to levels last seen in early November. The 10-year Treasury yield ended the week at just below 1.92%, almost 10 basis points higher on the week. While shorter-maturity bills and notes also sold off, their yields only rose by between 2 and 4 basis points, leaving the yield curve significantly steeper; the 2-10 year spread closed at +29, its widest level since June 21st of this year. The long-end selloff was driven both by a rise in real yields (i.e., rates without an inflation component, proxied by the 10-year TIPS yield) and a pickup in long-term expectations for inflation, with the 10-year TIPS break-even rate increasing by 6 basis points to 178 bps, its highest level since late July.

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MBS Weekly Market Commentary Week Ending 12/06/19

Treasury yields ended the week modestly higher, following a sharp rally earlier in the week.  Surprisingly, Friday’s surprisingly strong employment report only pushed yields 2-3 basis points higher, while Fed Funds futures indicate a 40% likelihood of a Fed easing by the 6/10/20 meeting, down from a roughly 50% chance earlier in the week.  The 10-year yield closed on Friday at just under 1.84%, about 6 basis points higher on the week, while the yield curve steepened; the closely-watched 2-10 spread widened by roughly 7 basis points to +22 bps, while the 2-5 year spread moved wider by about 3 bps.  It is noteworthy that the yield curve has become significantly less “bowed” than it was in September and October. 

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MBS Weekly Market Commentary Week Ending 11/29/19

The Treasury market was fairly quiet last week, with yields changing only modestly from the prior Friday. The 2-10 spread steepened by a couple of basis points to +16 bps, while the 2-5 year spread moved back into positive territory.

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MBS Weekly Market Commentary Week Ending 11/22/19

The Treasury curve underwent a notable bull-flattener trade last week, as short interest rates moved higher while intermediate and long Treasury yields dropped. The 10-year note closed at a 1.77% yield last week, a week/week decline of 6 basis points, while the yield on the 2-year note rose by just under 2 basis points to 1.63%. The yield curve “twist” left the 2-10 year spread flatter by 8 basis points, while the 2-5 year spread re-inverted (by a half basis point).

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MBS Weekly Market Commentary Week Ending 11/15/19

Treasuries rebounded last week, as the longer end of the yield curve recovered some of the ground lost earlier in the month.  The yield on the 10-year note declined about 11 basis points on the week, closing at 1.83%, while the 5-year yield dropped by just under 10 bps.  The rally in long Treasuries primarily reflected a re-assessment by traders of potential future inflation risks, as the 10-year TIPS break-even declined by 9 basis points.

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MBS Weekly Market Commentary Week Ending 11/1/19

Treasuries yields were lower at the end of a fairly volatile week. Bonds began the week with two straight sessions of lower prices, but bounced back after Wednesday’s rate cut by the Fed, along with what was viewed as a dovish press conference by Fed Chairman Powell. Despite a relatively strong employment report on Friday, the yield on the 10-year note ended the week about 8.5 basis points lower, while the best performer on the “coupon curve” (i.e., coupon-paying Treasury notes and bonds) was the 30-year bond, the yield of which dropped by about 10 basis points on the week.

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