Gambling with Stimulus

Good morning everyone! I hope you all had a good weekend.

The stock market is up this morning after stimulus checks started to go out last week. This money is intended to be spent to help businesses survive; however, a massive amount of it is making its way over to the stock market. We do not have a solid way to measure how much but a study by Deutsche Bank concluded that almost half of the $600 checks that went out last year ended up in the stock market. Regardless of where the money goes initially, the big question is if there will be more stimulus. The fist round of stimulus that went out a year ago sent a spending shock wave through the country but we saw the effects ware off by the Fall. If we follow a similar spending track this year, it is possible that we see the save wave flow through the economy for the summer but come to a halt by next Fall where the options may be accepting another slow down and potentially the start of a recessionary period or give out more stimulus. Some think that rates will continue to rise through the Summer but will be forced to decline later in the year because of this.

When we woke up this morning, we had some strange news from the Mortgage Backed Security market. It was that there was a global outage of pricing from all MBS providers, so we did not have pricing for hours. However, we got some good news as soon as pricing went live. MBS’ jumped 22 bps since market close on Friday. Now, this is the first big jump that we have seen in a while but we have no reason to believe it is hinting at a trend reversal due to the clear downward trajectory of MBS’ and the future inflation readings that will drive them even lower. We continue to hold a locking bias.