This is Matt Graham with the MBS Live market update. Last week’s biggest potential market movers consisted of several economic reports culminating in Friday’s. Big jobs report Monday, brought ISM manufacturing. It was close enough to forecast that it didn’t cause any major reaction. Nonetheless, yields drifted lower for other reasons. On Tuesday, there was no major econ data and the yields drifted higher. For no particular reason. Wednesday was really the first day of the week with significant economic data due to a DP Jolts and ISM non-manufacturing all coming out the same morning. Because of that, one might assume that the noticeable drop in yields was due to the econ data, but instead it had more to do with a bond rally in the EU in the overnight session. A DP was a bit weaker than forecast, and it added to the gains early, but then ISM came in much stronger and pushed bonds back in the other direction, albeit briefly. Yields managed to end the day in stronger territory, but the move wasn’t huge in the bigger picture. Moreover, they reversed course the next day with European bonds moving back toward higher yields, pulling treasuries along for the ride. And jobless claims data coming in stronger than expected, adding to the weakness just a little bit, but none of that stuff is the interesting part of the week. And you might assume that Friday’s big Jobs report is the reason. And even as we wrote the closing commentary on Thursday and looked forward to taking our seats on the sidelines, waiting for the jobs report to come out about five minutes later. Trump announced plans to direct his representatives to buy $200 billion of MBS. At the time, the assumption was representatives referred to FHFA and therefore the GSEs. That was later confirmed by FHA director, poey and the. Bond market, well, specifically the MBS market went a little bit crazy rallying significantly and quickly. The reason the bond market rallied is because this is a legitimate prospect to create a bunch of MBS purchases. Here’s what we know so far. The GSEs do in fact have balance sheet room to buy almost exactly $200 billion. That makes it seem as if this was a carefully calculated number and it was actually referenced in Trump’s initial comment. GSEs also have cash and short term receivables to fund purchases at a reasonable pace. They would foreseeably. Have more income coming in from llpa and G fees, same thing really. And they could also issue agency securities, uh, with short term. Durations to fund longer term MBS purchases. And again, Pulte confirmed this is the game plan, even though no official details have been announced yet. So what would it do? Well, apart from what has already done, uh, the GCs have already ramped up. MBS buying to the tune of roughly $50 billion over the past seven months. And this is one of the key reasons that mortgage rates have tightened versus treasuries to the tune of 30 to 50 basis points, depending on the way one chooses to calculate it. And again, the mere announcement caused a sharp rally in MBS and that equated roughly to a 20 BIP drop in the average 30 year rate. Of course, some of that is. Pricing in future expectations of this buying. So it’s hard to say exactly what the net effect of a full $200 billion of additional purchases would do, but uh, in any event, it will depend on the details of the announcement, where those purchases are targeted, how quickly they take place, et cetera. Uh, bottom line, it completely overshadowed the following day’s jobs report, which actually. Bumped 10 year yields a little bit higher. At first, MBS didn’t care. They kept on rallying significantly and ended the week much higher and, uh, with significant outperformance versus treasuries. That said, they began to find their range in an increasingly narrow pattern on Friday afternoon, and have continued to hone in on that sideways range so far this morning. With that, we can probably turn our attention to the stuff that is going to happen this week, and maybe we’ll get a chance to see economic data move the market again. Uh, we had a three year treasury auction out already this morning, 10 year treasury auction coming up at 1:00 PM but the economic data doesn’t really start rolling in until tomorrow with the latest CPI report at 8:30 AM This report will give the market a cleaner reading than the last one. Where the data collection was distorted by the government shutdown, and thus the market reaction is a little bit more unrestrained to run its course. Then the following day, we will get producer prices and other inflation metric along with retail sales, both at 8:30 AM taken together. Those definitely have the chance to move the market. Apart from that, there are no. True top tier reports the rest of the week, so we will see if there’s any major momentum coming off of that data and reassess from there. 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.