Mortgage Market Update – June 29th, 2020
Previous Week Recap
A spike in COVID cases along with a smattering of trade tensions and a growing sense that a President Biden may become a reality provided the framework for a risk-off session to close out the week. Equities struggled out of the gates on Friday and never recovered as the Dow ended the day lower by 730 points (-2.84%) and the S&P down 74 (-2.42%). Treasuries rallied as they are wont to do when investors seek safe-haven assets and yields fell 2 to 4.5 basis points across the curve. The 10yr touched .62%–its lowest level in more than a month—but still well within the confines of the recent range. Mortgages modestly underperformed their Treasury counterparts though current coupons still improved 5 to 10 basis points in price.
Despite being curtailed by the Fourth of July holiday, this week should provide interesting price action as investors close out Q2. Portfolio rebalancing will tend to favor bonds over stocks which should further undergird the recent demand for Treasuries and mortgage-backed securities. Away from the obvious COVID-induced headline risk, markets must also digest top tier data in the form of the monthly employment report—out on Thursday due to observance of the Fourth on Friday—in addition to testimony on the Hill by Treasury Secretary Steve Mnuchin and Fed Chair Jay Powell. Clearly a lot of risk events, likely made more volatile with desks manned by the JV team ahead of the holiday weekend.
Equity futures struggled overnight as the number of coronavirus cases surge both domestically and abroad, but have managed to turn things around this morning. Both the Dow and S&P are now pointing to gains at the open. Treasury yields are mixed, which would suggest rate sheet pricing that is pretty flat versus Friday’s close, all else equal. It feels like rates are inclined to migrate lower to close the quarter with 10s perhaps targeting the bottom of the recent range at around .55%.
Have a great week!
Head of Capital Markets, Southern Trust Mortgage