Learn from the Past
Mortgage backed securities (MBS) gained just 11 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to remain at the same levels as the prior week.
Overall, the March economic data was very weak. Normally, this would help lower mortgage rates but instead rates ticked up on the reduction of demand on the buy side of the trade as the Federal Reserve purchased fewer MBS than they had the prior week.
Manufacturing: The preliminary March headline Durable Goods Orders crashed to a reading of -14.4 vs. estimates of -11.9. Ex Transportation, it was actually better than expected with a shrinkage of only -0.2 vs. estimates of -5.8.
Consumer Sentiment: The final April University of Michigan’s Consumer Sentiment Index was revised upward from the prelim reading of 71 to 71.8.
Taking it to the House: March New Home Sales hit 627K vs. estimates of 645K. Weekly Mortgage Applications were flat at -0.3%. Purchase Applications increased by 2.0% while Refinance Applications dropped by only 1.0%. The February FHFA Housing Price Index MOM change was 0.7% vs. estimates of 0.3%. March Existing Home Sales hit 5.27M vs. est. of 5.3M.
Stimulation Nation: The House and Senate reached a deal for an additional $484 billion in Coronavirus relief.
What’s on the Agenda for this Week
This is an action packed week with three of the world’s top central banks meeting and a very deep economic calendar.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronavirus, (2) Central Bank Palooza, and (3) Domestic Flavor.
(1) Coronavirus: Of course, this once-in-a-hundred year global pandemic is driving all macro economies and will continue to the do so. Here are some of the main headlines to start our trading week.
• U.K. Prime Minister finally returns to work after COVID
• Many states to partially reopen this week
• 2nd round of PPP funds are released this week
• Japan’s PM Abe says Japan will approve Remdesivir as world’s first approved COVID treatment
(2) Central Bank Palooza:
• The Bank of Japan was the first out of the gate this week. They kept their key interest rate at -0.1% but announced unlimited QE and Bond purchases.
• Our own Federal Reserve with have their FOMC Interest Rate and Policy meeting this Wednesday. The markets do not expect anything new out of the Federal Reserve as far as rates and policy as the Fed has not been waiting to enact any measure that they feel appropriate.
• The news this week is that once again, the Federal Reserve Bank of New York will purchase fewer and fewer 2.50 and 3.00 MBS as part of their “taper”.
• The ECB will hold their policy meeting on Thursday.
(3) Domestic Flavor: This week will have one of most densely packed economic calendars that you will ever see with the Preliminary 1st quarter GDP, Chicago PMI, PCE, ISM Manufacturing, Consumer Confidence and Initial Weekly Claims. And those are just the major reports; there will be plenty of mid and lower tier releases as well.
Treasury Dump: There was a shorter term 5 year and 2 year auction today; neither impacted pricing today.
On Deck for Tomorrow: Case Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence, FOMC starts two days of meetings.
The Talking Fed
The Taper continues as the Federal Reserve Bank of New York purchased fewer MBS and started a lighter schedule this week, spreading only $5.28B among 2.5, 3.0 and 3.5 coupons.
Central Bank Palooza
The Bank of Japan was the first out of the gate this week. They kept their key interest rate at -0.1% but announced unlimited QE and Bond purchases.