This is Matt Graham with the MBS Live market update. Last week was an impressive one for the bond market with bonds rallying almost all the way throughout the week, ultimately hitting the lowest levels in terms of treasury yields in several months, going all the way back to October 22nd. MBS were similarly strong, leading to the lowest mortgage rates in more than three years, and strikingly the most stable week of low mortgage rates that we have on record. In other words. The MND rate index fell to 5.99% on Monday. It moved between there and 6.00 and nowhere else for the duration of the week. A trading range of 0.01 for that index, and that is the narrowest we have ever seen on an entire week that follows rates moving to a long-term low. Just to be clear, there have been five day stretches where rates have been more stable than that, not moving at all for five straight days, following a run to long-term lows. That happened in March, 2019 where rates didn’t change at all for five straight days, but that long-term low was only two years, not three years. So in that sense it’s still a record and for an entire week. Ranging from a Monday through a Friday. It’s also a record in that sense. Just a bit of trivia and nothing too critical to understand from a market movement standpoint. But it does underscore the fact that rates were very low, still are very low this morning, but things are definitely bouncing back in the other direction. And this speaks to a risk that we were talking about on MBS Live late last week where we had. Potential month end bond buying as a reminder month end positioning can have an effect on the bond market regardless of what’s going on in economic data and other fundamentals. And there are many reasons that month end trading can be motivated, but one of the most common is index extensions where money managers have to match the duration changes of the indexes that they are investing in. By buying and selling various combinations of treasuries and to a lesser extent MBS, to match those durations. And that creates buying and selling demand. Again, regardless of fundamental motivations, many people will wonder and say that the conflict with Iran is driving bond yields lower, and now driving bond yields higher. But we just haven’t seen any solid short-term correlation between jumps in trading volumes market movement. In fact, there was a negative correlation for most of the past few days, trading days. That is when it comes to treasury yields and oil prices. And even today we had treasury yields mostly holding steady in the overnight session after some initial. Weakness right at the beginning and ultimately rising around 7:00 AM when domestic traders get in for the day. The true opening bill is 8:20 AM but oftentimes when we see this new month trading erase the month end bond buying or month end bond selling as the case may be. It happens. Sometime between 6:00 AM and 9:00 AM domestically, and it did so today. It didn’t line up with anything that was happening in oil prices. In fact, oil prices have been declining since roughly 2:30 AM Eastern time, and bond yields have been rising. During that time starting at 7:00 AM oil prices have been declining since then as well, so that correlation is not there no matter what people tell you or what people want to believe. In terms of correlations that seem like they should exist based on past precedent in the rest of the week, the bond market is most likely to take cues from econ data, especially Friday’s. Big jobs report. We already saw a hint of that this morning with ISM manufacturing coming in a bit stronger than expected most notably at the price level and the employment level. And ISM non-manufacturing is an even bigger deal on Wednesday and then of course, the big jobs report on Friday is always the biggest to do of any given month when it comes to econ data that’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBS Live!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.