MBS Break Downward Trend

Good morning!

Like we have been talking about with inflation, most year over year reports are starting to get pretty funky. A year ago from right now, many were locked in their homes not spending any money, so different facets of the market tanked. Mortgage rates fell to record low so we saw the biggest wave of refinance applications that the industry has ever seen. The government was doing everything possible to keep money moving and we actually saw deflation for a number of months. I say this just because over the next couple months, year over year headlines are going to show some astonishing numbers and it is important to know to take them with a grain of salt. Having said that, we got purchase and refinance year over year numbers in this morning showing that purchases are up 13% while refinances have dropped 26% – astonishing numbers to someone who does not consider that rates were at record lows and nobody wanted to leave their home let alone move a year ago.

Mortgage Backed Securities ended the day up about 31 bps from market open. This gain broke through the down trend line that have held the MBS market captive since mid-February. Yellen and Powell are going to continue their testimony today which received a very positive reaction from the bond market yesterday. However, having the pressure of breaking above that trend line will make it difficult for bonds to hold and easy for them to fall due to any non-friendly news to the bond market. Bonds are down 3 bps so far this morning. We recommend locking in yesterday’s gains.

Have an awesome day.