MBS RECAP: Super Sideways Bonds Add To The Mystery

Posted To: MBS Commentary

Until today, even though bonds were already in a sideways pattern, we would have to have given the nod to the uptrend in rates vs the downtrend (2 competing trends are colliding, forming a consolidation pattern). Today's gains complicated that assessment and left the pattern more or less perfectly flat. Seeing as how a 3 day weekend is on top, that's actually not a huge surprise, even if it's different than what we were expecting yesterday. One good that came of today's session was the bond market's abundant willingness to react to economic data that was likely to be the week's most important. Specifically, Retail Sales revisions painted a bleaker picture of the consumer sector–especially when viewing the data in "core" format (i.e. excluding autos/gas/food…(read more)

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MBS RECAP: Super Sideways Bonds Add To The Mystery
MBS RECAP: Super Sideways Bonds Add To The Mystery

Mortgage Rates Hangin' Tough Despite Stock Market Recovery

Posted To: Mortgage Rate Watch

Mortgage rates have primarily been at the whim of the general tone of coronavirus news for the past few weeks. That meant a swift move to multi-year lows followed by an uneven correction back toward higher levels. But the correction has been anything but threatening, and it stands in stark contrast to a much sharper correction seen in the stock market (i.e. stocks quickly got over coronavirus fears and returned to all-time highs). Why are rates able to hang tough at levels that are still quite close to long-term lows while other parts of the market seem to have moved on? Although the US stock market has moved on to some extent, Asian equities markets have not. They are pricing in the global economic impact that will ultimately be seen due to coronavirus. Granted, that impact may not be huge…(read more)

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Mortgage Rates Hangin' Tough Despite Stock Market Recovery
Mortgage Rates Hangin' Tough Despite Stock Market Recovery

MBS Day Ahead: Uncertainty Actually Means Uncertainty

Posted To: MBS Commentary

I'll admit, there are times where I point out some chart-based evidence of uncertainty in the bond market and I feel like we're just delaying an inevitable move. The most recent sideways consolidation felt like that yesterday. Sure, yields were locked inside a nice, linear consolidation range, but with the coronavirus situation apparently improving and US stocks at all-time highs, it felt like we were merely waiting for rates to eventually break higher. What a difference a few hours can make! Stocks are still pretty close to those all-time highs, but bonds have moved to heavily favor the lower end of the recent range. Whereas I noted that the upwardly-sloped trend line was better established yesterday, today's gains quickly level the playing field (i.e. both of the red lines in…(read more)

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MBS Day Ahead: Uncertainty Actually Means Uncertainty
MBS Day Ahead: Uncertainty Actually Means Uncertainty

MBS Day Ahead: Beware The (Ongoing) Bounce

Posted To: MBS Commentary

Fancy chart overlays and technical studies are frustrating in the sense that they give us another angle to understand and discuss market movement, but they fall far short of reliably predicting the future. Spoiler alert: that holy grail won't ever exist when it comes to legally tradeable, publicly available market insight because, if it did exist, word would get out, the trade would become crowded, and it would no longer be a money maker. But let's forget I said all that so I can sell you a bit of this snake oil. It's like taking elderberry extract when you think you might be getting sick. If you don't get sick, was it the elderberry? Will you ever know? Same story with momentum technicals in the bond market. Both shorter and longer-term momentum technicals hit overbought levels…(read more)

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MBS Day Ahead: Beware The (Ongoing) Bounce
MBS Day Ahead: Beware The (Ongoing) Bounce

MBS RECAP: Bond Market's Simple Plan

Posted To: MBS Commentary

A few notes on the bond market's recent plans: First few days of 2020: Come into the new year ready for that break above 2.0% that everyone was expecting, but equally ready to react to unexpected geopolitical risk due to US/Iran conflict. Result: move to lower yields. Next few days of 2020: No war with Iran. Result: start moving back toward higher yields A few days after that: Detect the faint grumblings of epidemiologists identifying a new disease in China that sounds like it could maybe be like SARS. Result: stop pushing yields higher and wait for more info. Week ending Fri, Jan 24: Realize (along with the rest of the world) that this coronavirus thing could be serious. Result: set up shop as one of the most preferred safe-havens for the coronavirus panic trade. 2 weeks ago: kick that…(read more)

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MBS RECAP: Bond Market's Simple Plan
MBS RECAP: Bond Market's Simple Plan

Mortgage Rates Still Giving Back Coronavirus Gains

Posted To: Mortgage Rate Watch

Mortgage rates have spent just over a week moving back up from the lowest levels in more than three and a half years. Those long-term lows came courtesy of the panic surrounding the coronavirus outbreak, which led investors to move more money into safe havens like bonds. When demand for bonds rises, rates fall, including mortgage rates. The move back up coincides with a steady decrease in the level of panic surrounding the outbreak. Global stock markets have not been shy about reversing coronavirus-related losses, with US stocks actually back to all-time highs. Chinese equities haven’t made up nearly as much ground by comparison. And finally, the bond market (which dictates interest rates) isn’t anywhere close to its pre-coronavirus levels. All of that having been said, rates are still moving…(read more)

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Mortgage Rates Still Giving Back Coronavirus Gains
Mortgage Rates Still Giving Back Coronavirus Gains

MBS Day Ahead: The Bounce Continues

Posted To: MBS Commentary

2 weeks ago, as rates plummeted toward the lowest levels in more than 3 years, I began to point out a very obvious caveat to the gains. Because coronavirus fears were driving the move, it was only fair to expect a noticeable bounce toward higher rates when coronavirus fears began to ebb. This is not groundbreaking or deeply insightful analysis by any means. Indeed, it would be like concluding that if watering a plant makes it grow, that not watering a plant might make it grow less or stop growing altogether. But there are nuances both to the analogy and to real life in the bond market. Finance TV personalities often like to quip that "bonds are smarter than stocks." What they're getting at is the fact that bonds tend to take the big picture into consideration in a more rational…(read more)

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MBS Day Ahead: The Bounce Continues
MBS Day Ahead: The Bounce Continues

MBS RECAP: Low Rates on Borrowed Time?

Posted To: MBS Commentary

Bonds were weaker in the overnight session as Chinese equities markets continued to bounce toward higher levels. This follows a head-fake toward lower levels last week that helped rates move back toward the lowest levels in more than 3.5 years. Follow-through from that move was responsible for Monday morning's low rates. But in general, this week has been about the market moving to price OUT the ill effects of the coronavirus panic. For whatever reason, Treasuries have done an admirable job resisting that move, but their defiance has a boundary. In other words, if Chinese equities markets and US stocks continue higher (especially if those gains are driven by coronavirus headlines), US bond yields are likely to follow more faithfully. One explanation for bond resilience may have been hiding…(read more)

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MBS RECAP: Low Rates on Borrowed Time?
MBS RECAP: Low Rates on Borrowed Time?

Mortgage Rates May Be Pressured Higher As Virus Fears Ebb

Posted To: Mortgage Rate Watch

Mortgage rates were very slightly higher today after being modestly lower over the weekend, but in general, remain very close to the lowest levels in more than 3 years. They weren’t too much higher than current levels even before the coronavirus outbreak took center stage, but the virus definitely deserves credit for the extra downward momentum in recent weeks. Given that Chinese equities markets are already indicating the financial market psyche has shifted, it may only be a matter of time before US bond markets (which dictate mortgage rates) follow suit. That’s not to say that bonds must follow stocks. If that were the case, we wouldn’t see bond yields close to all-time lows while stocks are at all-time highs. Rather, it’s simply a comment on the fact that Chinese equities serve as a good…(read more)

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Mortgage Rates May Be Pressured Higher As Virus Fears Ebb
Mortgage Rates May Be Pressured Higher As Virus Fears Ebb

MBS Day Ahead: Powell Testimony, Skittish Markets, MBS Roll

Posted To: MBS Commentary

Amid a dearth of important economic data between now and Friday, the bond market doesn't have much to do when it comes to pricing in bigger-picture economic fundamentals. Even then, the word around the campfire is that traders are planning on giving much more credence to global economic data collected after January 24th, when the coronavirus fear really hit its stride. In the meantime, coronavirus updates themselves will continue to serve as guidance givers for both sides of the market. Stocks seem especially eager to trade the deceleration in the coronavirus case count while bonds remain cautious. Notably, stocks are also willing to move for interesting reasons. See if you can guess what happened here: Something did indeed happen, but it's not as interesting as it may seem at first…(read more)

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MBS Day Ahead: Powell Testimony, Skittish Markets, MBS Roll
MBS Day Ahead: Powell Testimony, Skittish Markets, MBS Roll