Today was characterized by an aggressive spike in 10yr yields that paradoxically followed a much weaker jobs report. The x-factor was/is the motivation that such a report could provide for lawmakers to make something happen on the stimulus front (bigger, sooner, or both). And bonds don’t like stimulus. Treasuries were hardest hit. MBS said ’twas merely a flesh wound. And mortgage rates said “wait, what? I thought I only needed to look at lender margins.” In other words, mortgage rates did best of all. The question of how to balance that resilience versus the potentially disconcerting trends in the broader bond market is the focus of today’s huddle video.
Econ Data / Events
20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)
Nonfarm Payrolls 245k vs 469k f’cast, 610k prev
Unemployment Rate 6.7 vs 6.8 f’cast, 6.9 prev
participation down 0.2% (offsets drop in unemployment)
Market Movement Recap
Bonds opened flat in Asia but sold off slightly during European hours. 10yr yields are starting out roughly 1.5bps higher at .926 and 1.5 UMBS are 1 tick weaker (-0.03). Bigger moves expected after jobs report.
Paradoxical weakness despite significantly weaker jobs report (245k vs 610k previously). Bonds could be reading increased stimulus odds into these numbers or traders could have simply been planning on selling regardless of the outcome. 10yr was as high as .954 but is now back down to .946. UMBS are 5 ticks (.16) weaker at 100-24 (100.75).
Losses kicked into slightly higher gear after the NYSE Open as stocks went where we’d expect them to go after today’s jobs report (i.e. to a place where fiscal stimulus is much more likely than it was yesterday). 10yr yields are at 9 month highs (.981) and 1.5 UMBS are down more than a quarter point on the day.
Definitely not seeing a massive bounce back, but at least some semblance of stability. Both MBS and Treasuries have been fairly flat during the afternoon hours. Markets traded NFP (aka, stimulus prospects) early and have tuned out for the day.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
103-15 : -0-08
0.9730 : +0.0520
|Pricing as of 12/4/20 6:02PMEST|
Today’s Reprice Alerts and Updates
3:34PM : ALERT ISSUED: MBS at New Lows; Reprice Risk Still Varies
10:50AM : ALERT ISSUED: Selling Getting Serious; Reprice Risk Varies
9:34AM : Treasuries Testing Key Ceilings; MBS Finding Footing
8:43AM : ALERT ISSUED: Bonds Paradoxically Weaker After Big NFP Miss
MBS Live Chat Highlights
Matt Graham : “Not trying to scare anyone or change any minds, but since we have a bullishly biased opinion in play, let’s balance it with a counterpoint: 10yr yields hit their highest level since March today. They’re settling down ABOVE what most would consider to be the relevant ceiling pivot point at .96%, and they’ve shown no indication of dip buyers actively pushing back in the other direction. Stocks are at all-time highs and moving higher into the close. Vaccine optimism has traders planning on covid-free economy in late 2021, and the bigger concern that I’m hearing is whether or not markets are pricing that in too late as opposed to too soon. Granted, MBS have been outperforming and mortgage rates have a ton of cushion, but MBS outperformance is now so huge that it will simply run out of room it it persists (yields are less than 30bps higher than 10s, which is something no one ever thought they’d see). That is actually a negative in the mortgage rate column at some point in the near-ish future. Wide lender margins are your only saving grace, and to be fair, they’re so wide that they could certainly save you from a lot of pain before rates ultimately follow the broader bond market. But the bottom line is that if 10yr yields are just catching their breath before more selling next week, mortgage rates will probably feel at least some of that burn.”
Matt Graham : “Look, I think lender margins are plenty wide to keep the party going, but I’d just be careful about thinking you know what rates are going to do next week. Seth said they’d go down, in not so many words, so I’m throwing out a counterpoint.”