Friday – July 19, 2024
UMBS opened down 11 bps in the first hour of trading. Stocks futures are up 6.75
This week’s bond rally hit a wall at the 3pm close on Wednesday. There’s been gradual upward pressure since when with today’s overnight session seeing some of the fastest selling. The counterpoint is that the selling is only fast relative to the recent range. It’s very mild in the bigger picture with 10yr yields only being up about 4bps. As for motivations, declining volumes have greased the skids for any material market movers to have a bigger impact than they otherwise might. One of the only quantifiable market movers has been the heavy slate of corporate bond issuance this week with nearly $50bln brought to market versus expectations for roughly $34bln according to BMO.
Microsoft had an outage overnight which is affecting banking, aviation and many other services. It is affecting European stock exchanges and the financial system, so originators might see some effects in things like underwriting and funding.
The Index of Leading Economic Indicators contracted again in June, albeit at a slower pace from May. Over the first half of 2024, the LEI contracted by 1.9%, a moderation from the 2.4% pace we saw in the second half of 2023.
Housing affordability is getting a little better due to falling mortgage rates, but we are still close to all-time lows. A person with a $3,000 budget can afford a $450,000 home at current mortgage rates, which is a little better than it was in April when affordability was worse. The typical monthly mortgage payment fell by $115 since then. We are seeing an increase in home supply, which is welcome relief to buyers as well.
In a vacuum limited to this week, Friday ended up being the only interesting day because it was the only outlier in terms of bond market price action. On the previous 4 days, the highest MBS price was within a 0.09 range and the lowest price was within a 0.06 range. Lastly, the widest high/low range of the week was about a quarter point. If you’re not sure what to make of that, it means Mon-Thu were flat. Friday was flat too, but only after overnight losses took MBS prices almost a half point below Thursday’s highs. In the bigger picture, this still isn’t that significant–especially considering these levels would still be the best in several months before last Thursday’s friendly CPI data.
UMBS closed down 11 bps at 100.86