Weaker Start, But MBS Outperform

Weaker Start, But MBS Outperform

The week got off to a weaker start with most of the losses seen during the overnight session, but gradual ongoing selling during domestic hours.  There were no overt market movers behind the weakness unless we want to give credit to anxiety over the Treasury auction cycle or technical resistance.  Even if auctions aren’t the source of the outright weakness, they do likely have a hand in helping MBS outperform today.  5.5 UMBS were only down about an eighth of a point while Treasuries with comparable durations had lost roughly twice as much ground (implication being that MBS don’t have to worry about 3 big supply gluts to start the week).

Market Movement Recap

09:44 AM Moderately weaker overnight and now choppy/sideways.  10yr up 3.9bps at 4.241.  MBS down an eighth.

11:01 AM Treasuries underperforming with 10yr up 4.7bp at 4.249.  MBS down 5 ticks (.16).

03:35 PM MBS continue outperforming, down only 3 ticks (.09).  10yr up 5.1bps at 4.253.

DPA, Non-QM, LOS, U/W, Accounting Tools; California Insurance Problems Continue; Disaster and FEMA News

Here in Louisville, KY, at the TMC event, this one is making the rounds. “What does a real estate agent’s wife say if she can’t sleep? ‘Honey, tell me about your day at work.’” Inventory continues to be low. While lenders everywhere seem concerned about the implications of the proposed NAR settlement (and I am sure that the real estate industry will figure out), how about the cost of their client owning a home? Homeowner’s insurance is either skyrocketing in cost or being eliminated entirely. California, the source of 20-25 percent of home loans, is in the news: California’s insurance commissioner Ricardo Lara “spoke out after the state’s largest home insurance provider announced that it would discontinue coverage for tens of thousands of policies this summer. State Farm will cut 72,000 home and apartment policies in California because of inflation, regulatory costs, and increasing risks from catastrophes.” For some good news, you can take Navy Fed off the list of lenders suspected of using race in its underwriting decisions, a story that created negative headlines in December. Good for Navy Fed! (Found here, this week’s podcasts are sponsored by Stavvy. Stavvy offers a flexible and fully customizable loss mitigation solution. Servicers can easily adapt to regulatory updates and market conditions, providing a seamless, customer-centric digital experience. Today’s has an interview with yours truly on the current conference environment and the challenges facing lenders in continuing to cut costs.)

Mortgage Rates Basically Unchanged Over The Weekend

Mortgage rates enjoyed a decently strong week last week, with the average top tier conventional 30yr fixed rate moving down to 6.91% by Friday from 7.09% on the previous Friday.  To put today’s “unchanged” headline in perspective, that same number is up to 6.92% this afternoon. To put all of the above in an even broader perspective, the recent, major extremes consist of October 2023’s highs at just over 8% and late December lows just over 6.6%.  In other words, we’ve moved a bit higher in 2024, but are still holding on to a majority of the improvement from long-term peak. There were no obvious motivations for rate movement today and that could be an ongoing theme this week based on the scarcity of big ticket market moving events.  That’s especially notable compared to next week’s calendar which boasts a major event on 4 out of 5 days with Friday bringing one of the two most important economic reports of any given month: the jobs report.

Beginning of The End (of The Month/Quarter)

Monday marks the start of a holiday-shortened week (early close on Thursday and fully closed on Friday) and the beginning of a week that will conclude with month/quarter end trading.  This doesn’t guarantee any specific outcome for the bond market, but it does increase the odds of random volatility unrelated to fundamental market movers.  That said, there will be a few fundamental market movers to digest.  These include a condensed Treasury auction cycle (2/5/7yr on Mon-Wed) and a few mid-tier econ reports, mostly on Thursday.  The week’s most interesting plot twist is the release of February PCE inflation on the Friday closure.  We can get an idea of the reaction in the futures markets, but it won’t officially be traded until next Monday.
Today’s trading is off to a weaker start with Treasuries underperforming (one would assume due to the auction cycle).  10yr yields continue to be very well behaved inside key technical levels with 4.19 offering a resistance bounce to last week’s rally.