Market Snapshot August 8, 2019

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Good Morning on this fantastic Thursday,

 

Big reversal in the markets yesterday afternoon. The Dow all but erased a 580 point hole and the 10-yr jumped to 1.72%. Mortgage bonds took a little beating as well but as they didn’t get the same benefit as Treasuries earlier in the week, they didn’t get hit as hard. Today a bit more selling in bonds has the 10-yr at 1.76%. This rebound is not unexpected. Bonds were very oversold over the last few days and a correction was due, kind of like blowing off a little steam. The news is saying China has backed of weakening their Yuan. I wouldn’t count on that, and it is likely not the reason for the volatility. The ECB is out today saying global growth will weaken further. That said, we are blowing through support today and that’s never comfortable. If we don’t hold the 10-yr at 1.75%/1.76%, the next stop is 1.90% or so. That’s not gonna make most people happy. The DOW is up 250+ and only making it harder for bonds/rates this a.m. As long as the equity markets rise it is likely that bond prices will fall.

 

Moving on, the question of this week has been, “with Treasury yields so low, why haven’t mortgage rates improved as much”? Part of the answer is the mortgage market can be slow on the uptake especially when people are busy. More importantly though, duration has a big impact on rates. Duration is how long a loan/that loan will stay active. If the loan pays off early, it becomes expensive for the servicer and industry which impacts rates. On that line of thought, 2018 vintage agency prepayments figure well above expectations, prepayments rose 70 percent versus 40 percent predicted.

 

Make today great!