Proving that you can’t win them all, MBS are down 30 bps on the morning. Stocks up 12 points.

UMBS 5.5 coupons were just down nearly 3/8ths of a point. A split second later, they’re only down a hair over an eighth of a point. And now back up to .3 in loss. The discrepancy is due to illiquidity and the sort of bid price volatility occasionally seen due to the “anything goes” mentality of some of the traders entering bids in an over-the-counter trading environment.

Also due to Consumer Sentiment coming in at 77.5 vs 70.4 forecast. 69 last time. Inflation expectations came in at 3.4 vs 3.3 forecast for 1 year. 3.1 for the 5 yr, which was on forecast.

If you want to know where rates will be in a couple of months, you just have to look at what markets are pricing in for future Fed policy rate hikes through the end of the year. Right now Fed members continue to beat the drum that rates need to be higher. However, markets (traders, economists) think the Fed is wrong, and will not be able to raise rates after this “final” hike in July.

Bonds sold off on Friday, with the easiest scapegoat being the extra strong Consumer Sentiment number (72.6 vs 65.5 f’cast). 10yr yields remained below yesterday’s highs, and although MBS prices were lower than yesterday’s, they’d outperformed Treasuries earlier in the week.  In short, most of the week’s gains remain intact.  In fact, considering it was a summertime Friday with super strong data after 4 straight days of gains that took bonds into overbought territory in the short term, one might consider a 6bp bump to 10yr yields and a 3/8ths of a point loss in MBS to be a victory, of sorts.

To close the week, MBS were down 36 bps on the day.  Stocks lost 5 points net.

in terms of sheer size the Fed’s holdings deserve attention, at the very least. The central bank has $2.55 trillion worth of agency mortgage bonds sitting in its vaults, which at the moment accounts for 29.4% of the $8.7 trillion outstanding. One institution holding almost one-third of any market rules that market, even if it didn’t, as this one does, have the ability to send market rates hither and yon at its pleasure. On the bright side, its total holdings are down 6.7% from the record level of $2.73 trillion they reached in April of 2022.