Good Wednesday AM on this best day of the week,
Stocks getting walloped. The Dow is down 700. The ten-year traded to .75 but hit a wall and has rebounded to .77 hurting mortgage bonds with it. The positive spin is that just last week, the yield was running almost to .90. The huge sell off in stocks this week is helping to drive the bond rally and this can end at any time. Most importantly, tomorrow is one of the biggest news day of the year! GDP will be released and if it beats expectations (I would not bet against Mr. Trump), it could end the bond rally. Floating overnight tonight will be dicey and not recommended.
I wanted to share a few lines from Matt Graham which I agree with completely:
Bottom line: it makes sense for both sides of the market to be respecting ranges and favoring sideways movement given the uncertainty ahead. If the 2nd wave of Covid gets worse before it gets better AND if stimulus remains elusive in early Nov, bonds should have no problem continuing to operate in the same sideways range (with a 10-yr ceiling under 1.0%). And as long as Treasuries aren’t doing any worse than that, MBS and mortgage rates have already proven their ability to outperform enough to guarantee with near certainty that rates wouldn’t be any higher than they are right now. Those are some big “ifs,” granted, and they don’t address the day-to-day volatility that can affect shorter-term lock/float decisions, but it’s nice to know that mortgages don’t need to be too concerned unless things get much worse in the broader bond market.
Please remain safe and healthy, make today great!