Weekly Mortgage Overview: 5/4/2015

Mortgage Backed Securities (MBS) Overview

The entire bond market is betting that Greece will default in at least a managed way…and instead of fear factor panic-buying…there will be MBS selling off. This is a very, very, very, very bearish market for MBS right now.

Out of Favor: Two of the biggest hedge-fund and bond purchasers (and a famous investor you may have heard of) have weighed in that the bond market is not the place to be…and folks…once their big chunks leave…all the smaller chunks will begin to follow. So if you are bullish on MBS and other long bonds, you are betting against the major money that actually drives the market. Good luck!

  • Lee Cooperman, chairman and CEO of the $9 billion hedge-fund Omega Advisors, said the stock market “isn’t priced to perfection” but it’s fairly valued, unlike the bond market.
  • Warren Buffet (Berkshire Hathaway) said “bonds are very overvalued” and that he would short the asset class if he could do it easily. “If I had an easy way, and a non-risk way, of shorting a lot of 20- and 30-year bonds, I would do it.”
  • Bill Gross (Janus…formerly founded PIMCO) published a piece that says the end of the bull market for bonds is finally here.

There was only one domestic economic release. Factory Orders improved by 2.1% in March which matched market expectations. But the key here is that it is March and part of the 1st quarter, which has already been swept under the carpet by the Fed and bond traders alike. MBS had little reaction.

Across the Pond

Grexit:  Greece and the Troika are meeting in Brussels. No real movement yet as Greece is unwilling to raise taxes and cut pension benefits. The FT is reporting that the IMF may break ranks with the rest of the Troika and deny Greece the last 7.2 billion traunch…EVEN IF Greece, ECB, Germany, etc., reach a deal. This is due to the IMF concluding that no matter what, Greece will have some level of default…the only question is what kind.

China: The HSBC/Markit Purchasing Managers’ Index (PMI) fell to 48.9 in April – the lowest level since April 2014 – from 49.6 in March, as demand faltered and deflationary pressures persisted. The number was weaker than a preliminary reading of 49.2, and below the 50-point level that separates growth from contraction compared with the previous month.

Tomorrow will be the first real dose of potential market moving data with the ISM Services Index.