Good Tuesday AM,

Well as mentioned yesterday, I was curious as to whether Monday’s selloff in stocks could be tied to month-end rebalancing and not a change of sentiment. With the way it looks today, that may not have been far off the mark. Equities are again screaming higher and bonds are being drained of what momentum they had built up. The 10-yr has jumped back to .91%. Mortgage bonds are off a bunch as well. Bonds are of late, replaying the story of Sisyphus. They push the stone up the hill to get to the top (better yields and rates), only for the gods to smack the stone back down to the bottom of the mountain for Sisyphus to start the journey back to the top again. President Elect Biden is discussing his economic team today (leading with Janet Yellin as Treasury Secretary, which I do think is a good choice) and committing to additional stimulus. There is also a story that current Treasury Secretary Mnuchin is talking with Pelosi about a new stimulus deal (which is unlikely to come together at this time). The bottom line is it will be tough for bonds to do much of anything great, while investor and traders and fund managers are dumping all of their money into stocks.

With today’s move, it is more likely that we’ll see 10-yr yields over 1% in the coming months, but nothing that’s happening this morning guarantees it.  Even if it does, the way things play out in the mortgage market could be a very different story. The spreads between mortgage rates and mortgage backed securities are still so excruciatingly wide that bonds could lose A LOT of ground before rates would necessarily be forced up.  The more gradual the weakness in the broader bond market, the less reaction we’d see in mortgage rates.

Please remain safe and healthy, make today great!