Mortgage Market Update – June 8th, 2020
Previous Week Recap
Good morning! The setup for Friday’s employment report had Treasury yields at the longer end of the curve threatening the top of a range that had been intact since mid-March. That range top was modestly breached on Thursday and flashed warnings of material follow-through. The much better than expected data-fueled liftoff reminiscent of Falcon 9 and it briefly appeared like the 10yr was going to cruise right through 1%. The selling pressure eventually moderated, however, and allowed yields to close several basis points off the day’s high print. Mortgage rates rose (pricing fell) in concert with their Treasury counterparts initially, but investors hungry for yield stepped in and aggressively bought MBS. Mortgages materially outperformed despite significant supply out of the origination community. Said another way, mortgage rates didn’t rise nearly as much as one would have expected.
There is a fair amount of debate surrounding the conclusiveness of Friday’s numbers. Furloughs have made both the collection and categorization of data much more difficult which certainly accounts for some of the dislocation versus expectations. We should anticipate revisions, but just how much is anyone’s guess at this point. Nevertheless, the report was solid across the board and adds to the narrative that the worst is behind us—and perhaps suggests things were never as bad as we thought. Make no mistake, however, the future remains fraught with risk even as equity indices appear poised to take back all of the pandemic-induced losses. In the short term, the path of least resistance for yields is higher though 1% on the 10yr should act as a psychological ceiling. Investors will get some insight on how the Fed is feeling about things as the FOMC is meeting this week, releasing a policy statement followed by a Q&A with Fed Chair Powell on Wednesday.
Overnight, equity futures moved higher still and yields are framed higher by 1.5 basis points or so. Mortgages are looking to start the week flat to Friday’s closing levels.
Have a great day everyone!
Head of Capital Markets, Southern Trust Mortgage