Volatility, volatility, volatility – just one more reason for people to get into application and lock when it makes sense.
Just like that – risk-on is back. Stocks are up sharply after getting clobbered yesterday. As we said in last night’s video, Mortgage Bonds were down slightly yesterday despite stocks losing 1,800 points. We said what happens when stocks move higher?
We are finding that out this morning as Mortgage Bonds and Treasuries are both moving lower, with the latter seeing outsized price losses. The 10-year yield has edged higher to .70% after hitting .96% last Friday and .65% yesterday. We have been seeing higher highs and higher lows for the yield and this has been taking place since mid-April. This is a trend worth following and sharing.
After suffering their worst day since mid-March, investors are pushing stocks higher today after booking profits the past three trading days. Pullbacks are not just common after big gains, but welcome and needed … especially after the S&P rose nearly 45% from the March 23 lows.
The only economic report today is Consumer Sentiment coming in at 78.9 from 72.3 in May … good news from the consumer.
The Fed will be purchasing up to $4.721B in mortgage-backed securities today and $22.5B total this week, down from the $50B per day when the program began mid-March. There are two operations at 10:00 a.m. ET – 10:20 and 11:30 – 11:50. The FNMA 30-yr 2%, 2.5% and 3% coupons will see the bulk of the buying with $2.97B at the 11:30 slot. As always, we will be closely watching the action.
The markets are dealing with the spook of a second wave of the virus versus all of the good news taking place – jobs returning, states and businesses reopening, pent-up demand and continued policy response from Fed, Treasury and Administration. We think the latter will win and the markets are telling us so.
Fundamentally, we were watching to see if bond prices were going to move higher into the uncertainty of the weekend with the new headlines around fears of a second spike in coronavirus cases. We are not seeing it as the potentially bad news from yesterday is not carrying through to today.
Technically, Mortgage Bonds are actually down 12bp from Wednesday’s close and that is in the face of stocks still losing over 1,000 points after factoring in this morning’s large gains. As mentioned, the 10-year yield is making higher highs and higher lows since April.
Let’s see how the day goes today. Right now, it appears the right time to lock for most clients, especially as you get closer to closing. For brand new clients, you can float but share the many reasons why they should not delay locking. The 10-year yield can’t break below .60%, Treasury yields are seeing higher highs and higher lows, stocks are looking ahead and taking money from bonds, volatility, additional bond supply going forward while Mortgage Bonds lost ground in face of huge stock losses.
Bottom line – rates are not going to move to high, but we should also not expect much improvement, if at all from here.