Started today with stock indexes a little better in the futures markets,
the 10 yr. note down to 0.50%; MBS prices at 8:30 am ET +88 bps from Friday’s 105 bp increase. More new cases of COV-19, increasing every day now. Congress still couldn’t get a stimulus and emergency package that appeared certain on Friday. Playing politics is the game that never changes in Washington, no matter the urgency.
A crisis in credit markets deepened on Sunday as a cluster of funds that own mortgage bonds sought to sell billions in assets, mostly private-label mortgages. The sales included at least $1.25B of securities being listed by the AlphaCentric Income Opportunities Fund on Sunday, after losing 17% last Friday. While this is a private labor deal, it does reflect one of the serious issues in the mortgage market these days. The rush to unload mortgage-backed securities signals that a credit meltdown that began with corporate bonds is spreading to other corners of the market. MBS markets have been in turmoil for the last few weeks as the virus outlook deepens. The Fed is set to buy Treasuries and MBSs, unlimited amounts to keep borrowing costs low, and, hopefully, add stability. The Fed had said a week ago it would buy at least $500B of Treasuries and $200B of agency MBS.
The Fed is ready to roll to do whatever it can to lessen the coming recession and help markets.
The US economy has, except for name only now, has collapsed on the weight of uncertain outlooks about the virus and huge debts that are due and not able to be paid without assistance. The Fed will lend against student loans, credit card loans, and US government backed-loans to small businesses, and buy bonds of larger employers and make loans to them in what amounts to four years of bridge financing. A new “Main Street Business Lending Program” that will extend credit to small-and-medium-sized businesses will also be announced “soon,” the Fed said. Existing purchases of US Treasury and mortgage-backed securities will be expanded as much as needed “to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.” In the statement, the Fed said the effort, approved unanimously by members of the Federal Open Market Committee, was taken because “it has become clear that our economy will face severe disruptions” as a result of the health crisis.
At 9:30 am ET, the DJIA opened with electronic trading (the NYSE trading floor is closed as is the CME floor in Chicago); the DJIA opened -330, NASDAQ -48, S&P -45. 10
yr. 0.85% -5 bps. MBS prices for the 3.0 coupon +53 bps and +132 bps from 9:30 Friday. The MBS prices these sessions are so volatile and, most of the time, not reflective of what lenders price to the origination sector.
The Congress has to come to an agreement today, if not, more declines in equity markets and more declines in interest rates. The GDP this year may fall by 1.8%. Six weeks ago, the outlook was for GDP to increase by 1.5%. Balancing those worrying forecasts, there is still a little optimism that all the government and Fed support may hold unemployment at 4.5%. Time will tell.
This Week’s Calendar:
10:00 am ET Feb new home sales (743K from 764K in Jan)
1:00 pm ET $40B 2 yr. note auction
7:00 am ET weekly MBA mortgage applications
8:30 am ET Feb durable goods orders (-0.6%, ex transportation)
9:00 am ET FHFA house price index (+0.4%)
1:00 pm ET $41M 5 yr. note auction
8:30 am ET weekly jobless claims (787K +506K; some looking for 2.5 mil increase in claims)
Q4 final GDP +2.1%, price index +1.3% both unchanged
from the preliminary report last month and it is very aged data)
1:00 pm ET $32B 7 yr. note auction
8:30 am ET Feb personal income and spending (income +0.3%, spending +0.3%; PCE +0.1%,
yr./yr. +1.7%; core PCE +0.2%, yr./yr. +1.8%)
10:00 am ET U. of Michigan final March consumer sentiment index (91.3
from 95.9 mid-month)
PRICES @ 10:00 AM ET
10 yr. note: 0.73% -12 bp
5 yr. note: 0.36% -11 bp
2 Yr. note: 0.27% -7 bp
30 yr. bond: 1.45% +2 bp
Libor Rates: 1 mo. 0.928%; 3 mo. 0.1.204%; 6 mo. 0.994%; 1
yr. 0.933% (3/20/20)
30 yr. FNMA 3.0: @9:30 103.13 +53 bp (+132 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 103.50 +70 bp
30 yr. GNMA 3.0: @9:30 103.89 +77 bp (+269 bp from 9:30 Friday)
Dollar/Yuan: $7.0845 -$0.0113
Dollar/Yen: 110.59 -0.23 yen
Dollar/Euro: $1.0799 +$0.0103
Dollar Index: 101.95 -0.86
Gold: $1525.50 +$40.90
Crude Oil: $22.48 -$0.15
DJIA: 18,813.12 -380.86
NASDAQ: 6857.86 -21.86
S&P 500: 2261.65 -43.27