What Happened Last Week?
Quiet Bond Market Leaves Focus on Demise of Adverse Market Fee
Seemingly out of the blue, the much-maligned adverse market fee for conventional refis was removed Friday. Lenders acted quickly to adjust pricing for new locks with most going so far as to adjust existing locks depending on their nearness to the closing table. It was an ideal day for such things considering a complete absence of volume and volatility in the bond market. 10-year yields ended with 1bp of unchanged and MBS underperformed slightly to end 2-3 ticks weaker (-0.06-0.09). The underperformance could be as simple as investors making token adjustments for the impact on prepayment speeds from the removal of the adverse market fee (it’s not a huge consideration, but it could bring more loans from this spring into the money for a refi).
What’s on the Agenda for this Week?
This week starts with traders weary of taking any risk which is helping mortgage backed securities (MBS) pricing. This is a “lame duck” week ahead of next week’s FOMC meeting.
The three areas that have the greatest ability to impact MBS pricing this week are: (1) Central Bank Palooza, (2) Covid, and (3) Global Flash PMIs.
(1) Central Bank Palooza: The focus this week will be on the European Central Bank’s Interest Rate Decision and Policy Statement on Thursday. There will also be an Interest Rate Decision from the People’s Bank of China. Our own Federal Reserve is in its “blackout” period ahead of next week’s FOMC Interest Rate and Policy meeting.
(2) Covid: Traders are once again freaking out about Covid as new cases surged 70% last week compared with the prior seven days to an average of 30,000 new infections a day, fueled by the Delta variant. Deaths rose 26% week-over-week to an average of 250 lives lost a day, mostly in unvaccinated patients. The resurgence of Covid is stoking a risk-off mood as investors consider whether new lockdown restrictions will sap the economic rebound.
(3) Global Flash PMIs. There will be key Markit PMI readings from Germany, UK, USA, Eurozone and more this week.
Taking it to the House: The July NAHB Housing Market Index came in at a very high level of 80 (anything above 50 is considered good). However, that was lighter than market expectations of 82 but just off of June’s pace of 81. Home builders continue to cite rising construction material prices and labor shortages.
On Deck for Tomorrow
People’s Bank of China Rate Decision, Housing Starts and Building Permits.