Mortgage Market Update – June 1st, 2020
Previous Week Recap
Key equity indices mounted a late date recovery on Friday, reversing early losses and ending the session essentially unchanged. This capped a week that was defined by improving investor sentiment with the country beginning to reopen and contemporaneous data that was generally better than expected, allowing the Dow and S&P to log gains of over 3% for the week. President Trump’s staff announced a press conference for Friday afternoon during which he was going to discuss the US relationship with China and given the recent flareup in tensions investors briefly stepped away from risk assets. Equities spent most of the day in the red, but the presser proved tamer than feared and became the catalyst for the reversal. While the President left phase 1 of the trade deal intact, few could describe his tone as conciliatory so watch for further developments to drive price action in the coming weeks.
Treasury yields experienced one of the bigger moves seen in a couple of weeks with month-end buying pushing yields lower by as much as 5 basis points for longer-dated issues, though still well within the range. Mortgages outperformed their Treasury counterparts thanks to the same month-end asset rebalancing as well as Fed buying. For the week, yields were within a basis point of unchanged while current coupon mortgages were better by around 45 basis points in price.
Current Events and Forecasting
This week begins with many of our major cities still smoldering, both emotionally as well as with the residual fires from weekend rioting. Clearly this threatens to complicate the reopening process as many small businesses must now contend with repairs before opening their doors. For now, this has had little impact on overall risk sentiment with equity futures and Treasuries looking to start the month pretty much on top of where they closed out May. Following large gains over the last two months, the next leg higher for equities will become more difficult to achieve, requiring actual evidence of economic stabilization. Treasury yields are coiling like a tightly wound clock spring, but the direction of any range break is uncertain at this time. Whichever direction the break occurs, however, should see a fair amount of follow-through.
Have a great week!
Head of Capital Markets, Southern Trust Mortgage