Market Snapshot February 25, 2020


Happy Tuesday A.M.,


Dow down another 380, the 10-yr at 1.33% and mortgage bonds essentially flat. I could get into another diatribe regarding the Coronavirus, what new and concerning events are happening (flight attendant testing positive) and more so, how we still do not have a handle on how bad this is going to be, but I’ve been saying that daily. Today, I thought I would touch on (with the help of Matt Graham) why mortgage bonds and rates are lagging the improvement seen in the 10-yr despite this risk-off sentiment that has for the moment, enveloped markets.


Please understand that mortgage bonds and rates cannot, will not, and should not be doing as well as Treasuries.  If mortgages improved that quickly and a few lenders decided to adjust rates accordingly, it would produce massive lock fallout on top of the already massive prepayment speed increases.  The faster mortgages are being paid off and the more locks that are falling out, the worse mortgages will be able to keep pace with Treasuries in the first place.  Mortgages need to be the tortoise to the Treasury’s hare in this case.  The upside is that even if the hare turns around and heads back in the other direction, the tortoise (with its satchel of mortgage lender rate sheets) could easily decide to keep heading for the finish line.


Not much more needing to be said today.


Make today great!

February 25, 2020 by · Leave a Comment

Market Snapshot February 24, 2020


Good Morning on this Monumental Monday,

The dam hasn’t burst yet but it is leaking. The DOW opened down 900 points (down 950 as I type) and the ten-year yield is now touching its all-time low at 1.37% (that is not a misprint). Mortgage bonds lagging, as they would have to, but are still up 20bps. The only way to say it is economic data for the time being is going to be effectively irrelevant. The Coronavirus is the news and now crippling the world economy. It has literally frozen a big part of the supply chain. As you likely know, the outbreaks are springing up in huge clusters all around the world. 50,000 people in Italy are now under quarantine. Economically and in the financial markets, this can get much worse before it gets better. The numbers in total (as you can see below) are not panic causing but there is some concern that the spread is happening in clusters, so finding people who have it before they travel is necessary.

I am including some interesting charts from the WSJ below to give a sense of what markets are seeing. Equities are stretched and the risk off trade is clear. It’s tempting to float to see how much lower rates will drop, but we are in relatively uncharted territory and there is a good chance of a knee jerk reaction in here as well. I don’t think it is a bad idea to lock in here.
Make today great!

aaa chart

February 24, 2020 by · Leave a Comment

Market Snapshot February 21, 2020


Good Morning on this Fantastic Friday,


Wow, the 10-yr is yielding 1.47% today. That’s just unbelievable. The Dow is down 200, this is the definition of risk-off trading over renewed concerns of Coronavirus and its spreading beyond Hubei province (along with serious doubts that the data from China is reliable). Not to start reciting numbers, but new cases in Japan, South Korea, Chinese prisons, etc. is raising concerns. Unfortunately for our little corner of the world, we are not yet seeing much spill over to mortgage rates. I am confident we will see some love but we first must break through a little technical barrier we have been up against for the past week. We are teetering on it yet again this a.m. Mortgage bonds are flat on the say and need to close up at least a few ticks (bps) and then have that confirmed on Monday for us to be off to the races. I think we have to wait and see how today shapes up before locking. If we lose ground from here, I would lock by the end of the day.


Matt Graham shared a pretty good primer on bonds that is worth sharing to explain the differences in the financial markets:


The bond market specializes in making bets about future economic realities even as the stock market reflects shorter-term performance of the biggest companies.  “Shorter-term” in this context means a heavy weight given to present day stats and an outlook that extends not more than a year or two into the future. 

Bonds, on the other hand, have an outlook that lines up precisely with their stated duration.  For example, the 10-yr Treasury note is accounting for everything it can reasonably foresee up to 10 years from now.  Sure, there is also more weight given to more immediate concerns, but even then, Treasuries tend to look farther out than stocks.  They also tend to benefit from the hedging of economic bets even as stocks remain on solid footing.


Ok moving on, who wants to discuss DPA? Not me, but it is a relevant topic today so I thought I would share the latest update from Rob Chrisman on HUD’s stance. Very interesting… and of course I’ll share more as it becomes available.


HUD’s attempt to prohibit national government DPA was rejected by a federal court in July 2019. But apparently the agency isn’t done trying. In its Regulatory Plan for Fiscal Year 2020, HUD has again proposed to limit where governmental entities like the Chenoa Fund can operate. By limiting the geographic scope of government programs, HUD would create regulatory monopolies. The agency is also proposing to dictate acceptable pricing, even though command and control economic regulations never actually get this right, usually causing more harm to consumers than help. The loss of DPA options for borrowers and competitive pricing provided by programs like Chenoa Fund would disproportionately impact minorities, who have far less inter-generational family wealth than the typical white person. HUD is making the move even as a new study has found that the receipt of down payment assistance does not significantly increase default risk. That study is found here.


Last, I love pictures that tell a story… the MBA just released the below infographic on the homeownership rate by age group… It’s amazing that the 44 and under (with more concentration on the under 35) are pulling back from home ownership when the total home ownership percentage has now topped 65%. There is a lot of opportunity to reach these cohorts.

aaa chart

That’s it. Enjoy the weekend and first, make today great!

February 21, 2020 by · Leave a Comment

Market Snapshot February 20, 2020


Good Morning on this Terrific Thursday,


A good piece from Matt Graham this a.m. is below. Matt is always a bit more technical but the point is pretty clear. We are range bound as the markets try to figure out how much damage the Coronavirus has and will cause both on an individual health level and more importantly to markets, economically. It is not looking pretty right now.


In case you’re just joining us, there’s a consolidation going on in the bond market.  That means yields are trading in a progressively narrower range after making a relatively bigger move.  It happened in grand fashion in the second half of 2019 and we’re seeing a smaller scale example so far in 2020.  


The “relatively bigger move” in question January’s drop in rates, precipitated by the ramping-up of coronavirus fears.  In many significant ways, coronavirus continues keeping a lid on yields, even though traders are also considering things like Fed policy, the 2020 presidential election, and economic data.


Econ data would be a lot more significant if it weren’t for coronavirus.  Reason being: the current crop of reports must now be taken with a grain of salt because the full impact of coronavirus has yet to work its way through to the data.  In the meantime, we have warnings from the likes of Apple, among others, about lower sales as a result of the outbreak.  


If the bond market knows the hit to global economic data is coming, it doesn’t make much sense to stampede back toward higher yields until we see how big the hit turns out to be.  As you might imagine, this won’t be resolved by the end of this week.  Indeed, it will probably be months before the picture becomes clear. 


In the meantime, general range-trading vibes will be the order of the day unless acted upon by some unexpected development or a definitive change in the presidential race.  “The range” as I see it is likely a bit bigger than the average originator would want to see. 


Whereas we’re currently in the process of defending a 1.575% ceiling in 10-yr yields (and the prevailing downtrend seen in the chart below as a teal line), those lines shouldn’t be assumed to have much staying power.  1.67% is a better overhead target in the coming weeks.  That’s not to say we’re definitely moving in that direction.  Rather, that’s the far side of the current playing field.  In any event, we won’t see it today or tomorrow.  As such, this consolidation won’t even have a chance to morph into something else until next week at the earliest.


And to further the point on the reliability of data from China, this posted in the NYT today (oy vey):


China again alters coronavirus methodology


For the second time in about a week, China has changed its criteria for confirming cases of the virus, making it increasingly difficult for public health experts to track the outbreak. The government said today that it would now differentiate between “suspected” and “confirmed” cases. Cases would be considered confirmed only after genetic testing, which is difficult to conduct and whose results are often wrong.



The 10-yr is improving to 1.52% today. That looks great but mortgages are lagging. I would think locking in here is a really good idea.


Make today great!

February 20, 2020 by · Leave a Comment

Market Snapshot February 19, 2020


Good Morning on this exceptional Wednesday,


So we are getting a glimpse of two disparate lenses on the Coronavirus. China reported fewer daily cases (below 2,000 new cases reported yesterday for the first time since Jan. 31st), which does raise the thought that maybe there is some control over it spreading and becoming a pandemic. I am skeptical. Just being a math guy, 2000 cases new cases per day on 20k or cases in January is a 10% growth rate, now 1,900 cases on 75k cases is 2.5% growth rate just a few weeks later seems improbable. China has not been known to be transparent on, well, any data so that makes these numbers more curious. Then China reported that 80% of the business are back operational but, in today’s world where you can also track pollution and traffic, that current data does not correlate to factories being back to work. I do not think the worst is over, however we are all hoping it is. So with that, markets have calmed down a bit. The economic data was stronger than expected however, likely anomalous due to the inventory build needed with factories and commerce being shut down. Anyway, stocks are up on the news. The second lens though is that of the smarter guys, the bond guys, who realize how impactful the last two months of slowdown and widespread fear will be on growth here and more so, abroad. Central banks are beginning to lower rates and we will see more, much more (including in the US). So we will see how this turns out. I don’t think today is a bad day to lock, actually a pretty good day. That said, I do see a case for rates to push lower.


Make today great!

February 19, 2020 by · Leave a Comment