Weekly Mortgage Overview: 7/18/2022

What Happened Last Week?

Why Were Rates Able to Defy Stronger Data?

With at least one Fed speaker mentioning Retail Sales as having a bearing on the Fed’s debate between a 75bp and 100bp hike at the upcoming July meeting. With a 1.0 vs 0.8 result, the market didn’t really get a definitive verdict. Yes, it’s stronger, but not by enough as to make the Fed’s choice obvious. It was also not enough to push inflation-adjusted sales into positive territory. In short, it provided additional fuel for the notion that recession may take the reins from the rate hike regime in the 2nd half of 2022. Longer-term rates (like mortgages and 10-year Treasuries) are better able to benefit from such things than 2-year yields or shorter-term Fed Funds Futures.
Source: Matthew Graham, Mortgage News Daily 7/15/22)

What’s on the Agenda for this Week?

Three Things

The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Artificial Demand, (2) Central Bank Palooza and (3) Treasury Dump.

(1) Artificial Demand: The MBS market will continue to be manipulated and supported by direct purchases of TBA MBS from the Federal Reserve. However, their pace of purchases will decrease. For example, last week, they purchased 30Y UMBS at $924M twice during the week. But this week that will move lower to $832M a whack, twice per week. Still a significant amount and given that mortgage volumes have dropped so much, it is still probably very close to the same ratio of Fed Purchases vs. total market purchases.

  • 07/18: 30Y MBS $832M
  • 07/19: 30Y GNMA $493M
  • 07/20: 30Y MBS $832M
  • 07/21: 30Y GNMA $493M
  • 07/22: 15Y MBS $180M

(2) Central Bank Palooza: There will be announcements from three major Central Banks this week. The markets currently do not expect anything major from The Bank of Japan or the Peoples Bank of China. However, the European Central Bank is expected to raise their key interest rate by at least 1/4 point for the first time in a decade.

(3) Treasury Dump: The last long-term bond auction prior to the Fed meeting is this week’s 20-year bond on Thursday.

Market Wrap-up

Taking it to the House

The July NAHB Home Builder Confidence readings took a big tumble, showing a modest level of 55 (50 is the zero line). The market was expecting a reading in the 65 to 67 range so this was a big miss to the downside and the biggest monthly decline since May 2020 and the biggest drop in history outside of the Covid drop.

Artificial Demand

The Federal Reserve Bank of New York purchased $832M of Fannie/Freddie 30Y MBS today:

  • 4.0 $161M
  • 4.5 $480M
  • 5.0 $274M

On Deck for Tomorrow

Housing Starts and Building Permits, Fed Purchases GNMA 30Y MBS.