Learn from the Past
Overview
Mortgage backed securities (MBS) gained 54 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower from the prior week.
It was a holiday-shortened weekly session with an early close on Thursday and the bond market closed on Friday. MBS (the only thing that mortgage rates are based on) closed the week up. There was another large spike in unemployment filings and the Fed once again stepped in with another round of emergency action.
Domestic Flavor
Jobs, Jobs, Jobs: The February Job Openings and Labor Turnover Survey (JOLTS) showed a very robust 6.882M unfilled jobs vs. estimates of 6.600M. Initial Weekly Jobless Claims saw another surge, this time by 6.606M vs. estimates of 5.250M. The 4 week moving average is now 4.265M.
The Talking Fed
The Federal Reserve Bank of New York purchased $5.5B of FNMA 2.56 and 3.0 coupons at 9:50am and then again at 2:20 pm EDT.
The Minutes from the last FOMC meeting on Wednesday were issued. In a separate measure, the Federal Reserve announced another round of emergency measures. This time with a big hammer. They will do up to 2.3 trillion dollars. Here is some of what that entails:
• The Main Street Lending Program will “ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans.” This means that the Paycheck Protection Program will likely be expanded by an additional $250 billion to reach a total of $600 billion.
• A special-purpose vehicle that Fed created jointly with the Treasury Department will purchase 95% of the loan while the financing institution would hold the other 5%.
• Expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities and the Term Asset-Backed Securities Loan Facility to support as much as $850 billion in credit.
• The loans would be geared toward businesses with up to 10,000 employees and less than $2.5 billion in revenues for 2019. Principal and interest payments will be deferred for a year.
• A Municipal Liquidity Facility which will offer as much as $500 billion in lending to states and municipalities, by directly purchasing that amount of short-term notes from states as well as large counties and cities.
• Starting the Paycheck Protection Program Liquidity Facility, “supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses”.
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Central Bank Palooza, (2) Coronavirus and (3) Domestic Flavor
(1) Central Bank Palooza: Bank of Canada will hold a meeting, and there will be a rare NBS meeting out of China, as well as an update from the IMF. Our own Federal Reserve will reduce the amount of MBS purchases again (they have reduced the daily purchase amount each of the past three weeks). They will also issue their Beige Book.
(2) Coronavirus: Of course, the primary driving force behind all of the emergency governmental, Treasury and Central Bank auctions is the COVID-19 pandemic and its monumental impact on the global economy. Here are the headlines to start off our week.
• U.S. Cases now more than 560K, deaths more than 22,110
• Global cases now more than 1.86M and deaths more than 115K
• Amazon to hire yet another round of workers, this time 75K (had previously announced 100K)
• China and Russia see big spike in cases
• U.S. considering restrictions on WHO funding
(3) Domestic Flavor: While the economic data over the past couple of weeks has primarily been from February, the economic data this week will mostly be from March which is much worse than February as it is from a period where the economy really started to feel the impact from COVID-19. Of note is Retail Sales but getting the most attention is the weekly dose of Initial Jobless Claims.