Good Morning on this fantastic Tuesday,

After 8 days of red, bonds are due for some green. Currently, we are seeing a little bit of that. Of course the hope is that we stay green and even expand on it a bit but for now, the 10-yr is at 1.14% and mortgage bonds (which have outperformed Treasuries lately) are up a bit as well. There is not much data out today and it is the beginning of the Treasury auction cycle. Three year notes are being auctioned but those are not strongly correlated to the 10-yr or mortgage bonds. There is a 10-yr auction tomorrow (along with CPI data and a speech by Fed Chair Powell) so any movement today will either be confirmed or dispelled tomorrow. There are not many reasons to be floating loans right now although I also don’t see much downside.

Turning quickly to forbearances as the volume on this topic will be increasing.  Forbearances were designed to last a maximum of 12 months, but then what? There is still no direction on what will happen as forbearances expire. Lenders/servicers who have not received payments for up to one year will need to have this addressed or will address on their own (demanding payment or threatening other loss mitigation). I am sure the Biden administration is aware of the timing but the chart below shows how quickly this could become problematic. Almost 25% of forbearances will expire in March and more than 50% between March and June (1.35mm loans).

Please remain safe and healthy, make today great!