Mortgage Mike’s Daily Rate Commentary

Happy Friday everybody!

We got in BLS Job Creations for the month of February much higher than was projected. Projections for the month were 140k, actual creations came in 170% higher at 379k. The S&P reacted well this morning but are now in the red while tech stocks continue to get hammered – down another 1.8% this morning.

We saw the bond market take a hit after the Fed meeting where Jerome Powell seemed to take a nonchalant stance on upcoming inflation. We know that inflation is the enemy of the bond market, so having our Fed Chair not have a real opinion on near term inflation was not good news for bonds.

Mortgage Backed Securities broke through a floor of support yesterday and were sitting on the final floor of support above the worst pricing we have seen in a year when the market opened up this morning. Luckily, MBS’ are now up 6 bps. We are still holding a locking bias knowing that that final floor is so close.

End the week strong and have an awesome weekend!

Good morning everyone!

Let’s start with the bad news in the MBS market. We saw the notorious “Death Cross” this morning preceding a 50 bps drop in MBS pricing. The Death Cross is when the 50 day moving average falls below the 200 day moving average – a very negative technical sign that often precedes a major sell-off. Now, there are two things that can happen if we do see this sell-off. One is the Jerome Powell decides to step in and the Fed buys up more Mortgage Backed Securities. That is best case. Worst case is they do not increase purchases and inflation fears continues to drive rates higher after the sell off. As we talked about 2 days ago, because of the negative inflation rates at the beginning of COVID lockdowns, our year over year inflation readings in April and May are going to shoot up – some project around 2.5%. Now, this 2.5% is 25% higher than the Fed’s target of 2%. This reading may spook bond investors and exacerbate the sell-off.

Unfortunately, bad news is all we have today. We got in job creations for last month and they were not very pretty. Creations came in at 117k, 29% lower than expectations at 165k. We are still sitting around 10m less jobs than prior to the pandemic.

We are holding a locking bias with all of today’s rough news. Hopefully we can turn it around for tomorrow!

Have a good day!

Good morning everyone! I hope you had an awesome weekend.

Good news in the stock market this morning – the S&P is up over 2.4% as Treasury yields fall. We saw stocks retreat in the last week as Treasuries rallied. However, the momentum behind the J&J vaccine approval and the $1.9T stimulus bill being approved by the House forced yields down and stocks up.

The MBS market started off the day following Friday’s trend. Unfortunately, after being up 13 bps early this morning, they have taken a 32 bps swing and now sit down 19 bps. Like we have talked about in recent reports, this rise is largely coming from inflation concerns. The stock market is hot, the housing market is booming, unemployment is dropping, and many other factors are all driving inflation up and mortgage rates higher. Now, on Friday, we got the PCE reading which showed that investors may have thought rapid inflation growth was coming sooner than it is. They look at a year over year number that was well below the Fed’s target of 2%. However, as we get closer to the year mark of the beginning of the COVID shutdown where we saw negative inflation, those year over year reading are going to get much higher and may scare even more investors out of the bond market. For example, in April of last year, we saw a massive -.4% inflation fall. When compared with current projections of inflation, the reading will come in somewhere around 2.5% year over year. That is 25% above the Fed’s target, a very concerning headline for investors who my not be considering the relative position we were in a year ago.

We are still holding a locking bias.

Happy Friday everyone!

Yesterday, we talked about how today was going to be a pivotal time for the tanking MBS market because the Fed was going to release PCE inflation numbers. Treasuries have been rallying and bonds have been taking the biggest hit since the beginning of COVID shutdowns in March. Despite Jerome Powell stating that easy money policies will continue, this rise is due to concerns over rapid inflation coming from great success in the vaccine rollout, the stock market shattering through ceiling after ceiling, unemployment falling, and the housing industry booming. There are a lot of inflationary forces in the market, but we saw this morning that it is not as bad as investors may have guessed. So, inflation for the last year came in between 1.4 and 1.5%, well below the Feds target of 2%. However, months to come will show the impact of our current inflationary situation.

Emergency use of the J&J vaccine, that we talked about yesterday, will be voted on today. If this goes through, the stock market will rally and put upward pressure on mortgage rates.

MBS’ are up 42 bps at this point. They broke below a strong Fibonacci level yesterday and are now above it but it opens the door for them to fall below it again. With the vaccine vote today and general volatility in the MBS and Treasury markets, we are holding a locking bias.

Finish this crazy week off strong everyone!

Good morning everyone!

Lets start with the good news. We got promising numbers in for a thriving purchase market. Pending home sales are up 13% from this time last year. Keep in mind, this growth is happening during the greatest inventory shortage since the Great Recession. The Chief Economist of the National Association of Realtors spoke about how much higher that growth would have been in a market with larger inventory. Despite the shortage, he thinks the purchase market will remain strong throughout the year based on the increase in number of building permits and requests to build new homes.

The other piece of good news is that Unemployment Claims dropped significantly this month to the lowest number since November. A Chief Labor Economist out of NY talked about how the trend is likely to continue as the vaccine rollout is working and people are going out and spending more money. Now, these claims came during the same time that some of our county was in a shutdown due to cold weather. Regardless, the Labor Officer claims we will continue to see a sharp fall in claims.

On to the bad news… Mortgage Backed Securities are tanking this morning – down 105 bps so far. Tomorrow is going to be a pivotal day in the bond world because we will get PCE numbers. The bond selloff is on the back of fears of rapid inflation – the market has been hot, the vaccine rollout is working, unemployment is dropping and more people are spending more money. Tomorrow morning we will get a real feel for which direction and how fast inflation is moving. However, it looks like treasuries will continue to rise and put more upward pressure on rates. We hold a locking bias.

Have a good day!

Well it seems like the bond market did not believe Fed Chairman Powell yesterday when he explained that easy money would continue because our inflation levels are nowhere near his goal. We saw an immediate positive reaction for the Mortgage Backed Securities market; however, that good news did not last overnight. MBS’ started the day with a 60+ bps drive. They are attempting to climb out of the massive hole from this morning and now sit down 23 bps from yesterday.

On the upside, we will likely see another vaccine come to market, but this one is only one dose. The new Johnson & Johnson vaccine was deemed safe and effective by the FDA, starting the journal to approval. In addition, J&J claims that this vaccine is even better at reducing COVID spread through asymptomatic people. J&J claims they will be able to provide 100 million doses to the US by the end of June as well as more that 1 billion worldwide in 2021.

With MBS making such drastic moves, we are holding a locking bias.

Good morning everyone!

Like we said yesterday, this is a big news week staring off with Fed Chairman Powell’s meeting with the Senate Banking Committee. Amplified by the amount of volatility the market is currently seeing, this meeting has the potential to swing the market either way. In the meeting, Powell held strong to his commitment to easy money policies until the economy is at acceptable inflation and employment levels. Reassured by his statement that these levels are a long ways away and that our current economy is “extraordinarily uncertain”, we can assume that Powell will hold this stance for the foreseeable future.

Final home appreciation numbers from 2020 are in this morning. The Case-Shiller report showed annual appreciation at 10.4% – an absolutely enormous year for the housing industry and a seven year record.

Mortgage Backed Securities started the day off with a 25 bps plunge but have since climbed up to an 11 bps drop from yesterday. Like we have talked about in recent reports, the rapid run that treasuries are on are pushing mortgage rates higher. Treasuries are currently hitting a ceiling that they have not touched since May 2020. Hopefully this ceiling holds. However, if it is broken, there is a lot of a room for treasuries to continue to run and drive the MBS market down. With the amount of news coming out this week and a volatile Treasury meeting, we are holding a locking bias.

Have a great day!

Hey everybody! I hope your day is off to an awesome start.

The stock market is in the red today as both the S&P and Nasdaq fall due to rising treasury yields. Investors are pulling out due to inflation concerns. We will get inflation numbers later this week and will have an idea if the market is correct or if this is an overreaction.

CNBC released an article today talking about the widespread acceptance from employers regarding WFH (work from home). They estimate that 20% of the US workforce is currently WFH and 28% of Americans have considered relocating during the pandemic. A move back to the office is going to be a strange transition for both employees who have been at home for almost a year and employers who have not seen their employees for almost a year.

We do not have much news for you today, but this week has a ton including PCE and the Case Shiller report.

Mortgage backed securities continue their 2021 slide, down another 44 bps so far today. Again, nobody wants to be the investor who tries to catch the knife. So Mortgage backed securities continue to slice through floor after floor. We are still holding a strong locking bias.

Finish out the day strong!

Good morning everybody,

We have some wild news in this morning concerning existing home sales and current inventory. From this time last year, existing home sales are up 26%. This does not even take into consideration the record number of new builds that have been going up. At the same time, housing inventory is down 24% from this time last year. This has lead to the 10%+ appreciation that we have seen. However, a deeper dive into this will further show the disparity that the pandemic has created between the upper and lower class. Lower end home sales are actually down 28% while $1m+ home sales are up 80%+.

Mortgage backed securities continue their steep fall that started at the end of January. Breaking through floor after floor because nobody wants to risk trying to catch the falling knife. One of the biggest reasons for the increase in mortgage rates is the fear of inflation caused by future stimulus spending. As we have talked about in previous reports, Janet Yellen has been very vocal about wanting to “go big” when it comes to the next stimulus bill. And she has doubled down on that message multiple times since. If the Treasury does “go big” on stimulus, we will likely see both taxes and inflation follow suite. The MBS market is already down 31 bps this morning. We continue to hold a strong locking bias.

Good morning everyone!

We continue to hear about how the economy is recovering as business restrictions are lifted and our unemployment drops. However, at the same time, optimism of small businesses is falling. We got the NFIB Small Business index in this morning which gets a general measurement of confidence around small business from consumers. The most recent reading came in at 95 – the lowest reading since the beginning of the pandemic in May 2020. We will see how the vaccine rollout effects this number but many assumed that it was going to come in much higher.

Mortgage Backed Securities have seen a decline for the past 2 weeks. Now remember, one of the major downward forces in the MBS market is the gains the 10 year treasury has seen – the two markets often move in opposition. In mid-January, the 10 year hit a Fibonacci ceiling and fell below for the last month. Yesterday, that ceiling was tested again and held strong, not letting the 10 year break through. This is good news for mortgage rates and know that the more times a ceiling is tested and holds, the stronger and stronger that ceiling becomes to investors. Mortgage Backed Securities are now hovering above their 200 DMA which has proven to be a strong floor. However, while we have a strong floor, MBS’ are being pinched between it and a triple ceiling of the 25, 50 and 100 DMA. Because of this strong ceiling, we are holding a locking bias.