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!