Tuesday – October 22, 2024
UMBS are up 6 bps on open. Not nearly enough, after yesterday. But at least it’s green. S&P stock futures are down 23 points.
The index of leading economic indicators deteriorated in September, according to the Conference Board. The index fell 0.5%, which was lower than the -0.3% estimate and the downward-revised -0.3% a month ago. Weakness in factory new orders continued to be a major drag on the US LEI in September as the global manufacturing slump persists. Additionally, the yield curve remained inverted, building permits declined, and consumers’ outlook for future business conditions was tepid.
Bonds have been negatively reacting to the latest Fed-speak, which has amounted to the Fed Funds futures handicapping a decent chance (1 in 3) of only 25 basis points in cuts this year. Neel Kashkari said that long-term rates (i.e. r-star) could be higher going forward than it has been in the past, while Lorie Logan and Jeff Schmid emphasized that further rate cuts would be “cautious and deliberate.”
Mortgage REIT AGNC Investment reported good earnings yesterday and sees a better investment environment for government-guaranteed mortgages. The outlook for Agency MBS today is decidedly better than it was in 2022 and 2023 as a result of the positive direction of the broader economy, the accommodative Fed monetary policy stance, and the stability of Agency MBS spreads at these historically favorable levels.
Overall, we have two competing forces in the mortgage market: A yield curve that is moving from inverted to positively-sloped and improving MBS spreads. That said, unless inflation returns we are probably looking at lower mortgage rates once we get past the slow season. November through February.
Bonds had a significantly calmer day in terms of day-over-day change. In fact, by the 3pm close, both MBS and Treasuries were close enough to unchanged. There was a bit of intraday volatility that saw bonds attempt to stage a little rally only to give it all up by the noon hour–the latest reminder that we’re dealing with some asymmetric risks over the next few weeks
UMBS 5.5 closed the day pretty much flat – down 2 bps at 99.57
