Mortgage Market Update – May 18th, 2020
Recent Events Recap and The Fed
Good morning! Hope everyone had a nice weekend.
Friday’s trading session closed out the week in relatively uneventful fashion. The much anticipated retail sales figures came in even worse than expected, declining 16.4% month over month, and reset Q2 GDP estimates another rung lower. Risk markets shrugged off the bad data—as they have recently been inclined to do—embracing instead the surprisingly high consumer confidence surveys that printed later in the morning. Key equity indices managed to end the day with modest gains, though still slightly negative for the week. Treasury demand was tepid and yields closed flat to 3 basis points higher across the curve. Mortgages tracked Treasury performance, worsening 7 to 15 basis points in price.
Sentiment to start the week seems to favor risk. Equity futures are pointing to strong gains at the open, encouraged by comments that Fed chair Jay Powell made in a weekend interview with news show “60 Minutes”. While he conceded that the near term employment and growth outlook was bleak, he suggested the underpinnings of the domestic economy remain sound, and with the right mix of fiscal and monetary policy, we should see a significant recovery. Contributing to the “risk-on” tones are incrementally positive reports on the development of a COVID-19 vaccine.
The early Treasury response has been muted so far this morning, with yields trading inside of a basis point to Friday’s closing levels. The confidence that the Fed will continue buying bonds has left yields somewhat inured to intermittent bouts of market optimism, keeping the range trade very much intact. I expect that to continue in the leadup to the Memorial Day weekend.
Make it a good one, folks.
Head of Capital Markets, Southern Trust Mortgage