Tuesday – November 19, 2024

UMBS up 14 bps in the 3rd hour of trading today.   Stock futures down 34.75 points

Tuesday brings a classic example of a seemingly significant geopolitical headline resulting in a completely underwhelming bond market reaction.  When it comes to such matters, we must ask “who thought it seemed significant?”  Quite a few people, most likely, but not as many bond traders. One big issue is that global nuclear posturing is all posturing until it’s not.  The bond market can’t afford to freak out in response to every apparent escalation, and so it’s not.  Overnight gains were driven by a classic flight to safety “sell stocks, buy bonds” both in Europe and the US.  Volume has been quite strong, but the gains have been lackluster at best.

Housing starts fell to 1.311 million units in October, according to the Census Bureau. This is down 4% on a year-over-year basis. Building permits fell 7.7% on a YOY basis to 1.534 million units.

Homebuilder confidence improved in November as political uncertainty abated.

Nomura is out with a call saying that the Fed will not cut rates at the December FOMC meeting. Their argument is that the election of Trump will be inflationary due to tariffs, which will prevent the Fed from easing further. The bank sees the Fed skipping the December meeting and then cutting in May and June of 2025 by 25 basis points. After that, they see the Fed holding rates there.

Stocks and bonds had a logical response to the threat of global nuclear war overnight, but even at the height of that trade, the gains weren’t too big for Treasuries/MBS.  Starting at 9am ET, bonds began giving back the overnight gains and that process continued in a slow and steady way throughout the session.  MBS ultimately hit unchanged levels and 10yr yields rose roughly 6bps from the lows.  The stock market made an even bigger round trip, ultimately ending higher for the 2nd day in a row.

UMBS closed the day up 4 bps at 98.97