MBS Continue to Fall

Good morning everyone!

The jobs report came in this morning putting the seven month streak of job growth in the US to a halt. The consequence the most recent lockdowns across the country was a net loss of 140k jobs in December. With estimates showing 65k jobs created, we saw over a 200k swing.

Mortgage backed securities continue to fall this morning, down 20 bps since the market opened. Having fallen through both their 25 and 50 DMA with little resistance in the past few days, their 100 DMA is their final hope. There are large concerns that the MBS market will continue to suffer now that Democrats control the Presidency, the House and the Senate. This fear comes from their ability to pass large amounts of stimulus without opposition from any majority Republican branch. This increase in spending will fuel inflation and will put upward pressure on mortgage rates which will bleed into affordability. In 2020, we saw affordability keep pace with record home appreciation because mortgage rates were on the floor resulting in a lower monthly payment. In 2021, we start with rising mortgage rates which potentially lead to decreased affordability and eventually depreciation. Given the market is already down 20 bps without any foreseeable news that could change its trajectory, we maintain a locking bias.

Have a great weekend!