Wednesday – November 6, 2024
UMBS getting SMOKED in the morning. UMBS down 60 bps early. Stocks up 124.75
Donald Trump’s victory in the US presidential election unleashed a shockwave in global markets as
traders prepared for dramatic policy and economic change under the new administration.
Heading into the election, we knew the bond market was losing ground in concert with improving odds of a Trump victory and red sweep. After being surprised in 2016, markets were determined to bake in as much of the expected outcome as possible. The seemingly massive overnight sell-off in bonds means that markets have done exactly that. 10yr yields are only up 19bps, and while that may sound big, it’s very much on the low end of the spectrum of potential election reactions. If there’s a reason, it’s that the red sweep has yet to be decided due to a neck and neck forecast for control of the House.
All attention now turns to the Fed, which starts its meeting today. Longer-term, it will be interesting to see what happens to the GSEs.
The services economy expanded for the fourth consecutive month, according to the ISM Services Index. “The increase in the Services PMI® in October was driven by boosts of more than 4 percentage points for both the Employment and Supplier Deliveries indexes. The Business Activity and New Orders indexes both dropped by at least 2 percentage points. Each of the four subindexes are now above their averages for 2024.
Bonds sold off overnight as the reality of Trump’s victory became apparent. Traders more or less nailed the trading levels right out of the gate. This didn’t leave much room for volatility during domestic hours (10yr yields started the day around 4.45 and are ending around 4.43). Given the all-consuming focus on the election, it would be easy to overlook the fact that Thursday brings the next Fed announcement (it would normally be on a Wednesday, but some smart person pushed it back a day).
Does that even matter in this environment? Frankly, probably not too much. At the very least, the market is 100% prepared for a 0.25% rate cut. The statement and Powell will both likely acknowledge improvements in economic data–especially the big shift in NFP–while at the same time reminding the market that the Fed is playing a long game and not to read too much into one month of data.
UMBS ended the day down 47 bps. Which is actually 20 bps better than it was earlier in the day. Final price at 99.00