Market Updates provided by Pheim Penman

Fixed rate markets were mostly flat in listless trading, with Treasuries trading marginally higher in price Friday, up 2/32nds, while current coupon mortgages closed tighter on lighter than average origination supply of around $2.1B. Month-to-date originations totaled $45.205B.

In an informal survey of lenders, lock volumes were relatively unchanged week-over-week, with mortgages and rates trading in a relatively tight range. Primary zero point, 30-year rates were in the 3.75-4.25% range; most lenders were flat to .125% lower last week. Using 4.00% as the prevailing rate, the primary/secondary spread was 110 bps, up from 105 bps the prior week. Currently, gross note rates of 3.00 to 3.625% are slotting into the 3.0% coupon, 3.75 to 4.125% into the 3.50%, and 4.25 to 4.875% into the 4.0%. All note rates from 3.50 to 4.625% are a buydown. The 3.75% and 4.25% coupons are cuspy and vary based on changing market conditions.

There is a scheduled Fed purchase operation today of 30-year bonds totaling $1.35B in FN/FG 3.5 and 4.0% coupons.

Quiet finish to last week, as the biggest news on the first summer Friday of the year was the release from the Alternative Reference Rates Committee (ARRC), announcing that the U.S. Treasuries-backed repurchase agreement market (repo) voted to replace the use of Libor as the interest rate benchmark, as expected. The process to convert from Libor will not start until the final proposal later this year and will take several years to implement, so the current impact of the announcement will be minimal.

Market Update provided by Rheim Penman

Mortgages closed mostly tighter to treasuries but wider to swaps on Thursday.  The FN30 3.5% was flat to the treasury curve and 1 & 1/8 ticks wider to the swap curve.  Overall mortgage trading activity was a little lighter on Thursday with the street reporting total fixed originations of $2.366B, compared to the 5 day average of $2.527B.  Month to date originations totaled $43.032B.  Roll levels have been coming off this week with the FN30 3.0%, 3.5% and the 4.0% rolls all down -¼ of a tick since Monday.

There are no scheduled Fed purchases today.

Yesterday the Fed released the results of their stress tests, and for the third straight year, all large banks passed.  The tests are designed to measure whether the 34 largest banks will be able to maintain a minimum 3% capital level, even in periods of severe economic downturns.  Next Wednesday the Fed will announce the results of their qualitative review, which determines whether the banks will be able to move forward with their capital plans and pay dividends to their shareholders.  The results of the tests may also help bolster Republican backed plans to ease up on financial regulation.

In economic news, the Federal Reserve Bank of Kansas Cities manufacturing index increased from 8 to 11 amid indications of stronger manufacturing growth and hiring.

The FHFA’s monthly Home Price Index provided further evidence of continuing increases in home prices amid a lack of inventory, with an increase of 0.7% for the month of April. The year over year increase was 6.8%.  Regionally, the Mountain (+8.9%), South Atlantic (+8.0%), and Pacific (+7.5%) districts continued to show the most significant increases.

Market Update provided by Rheim Penman


On Friday, mortgages outperformed as lighter supply from the origination community was met by better demand from real money accounts.  Current coupon mortgages finished the day about 3/32nds tighter (outperform) to treasuries as the day’s origination flow totaled about $1.8B.  The Fed’s reinvestment operation on Friday was focused on 30yr Fannie & Gold securities.  Today’s flows will be focused in 15yr conventional agency paper.  Last week, lenders reported that 30yr rates were posted at the lower end of the recent range with the move in the market. For the most part, 30yr primary rates seem to be posted in the 4.125-4.25% range.  Using 4.125% as the prevailing primary rate, the primary/secondary spread is 108bps which is down from 115bps the previous week.  With the move rates, lenders reported, on average, that locks were up 5-10% last week.

For the most part, 30yr primary rates seem to be posted in the 4.125-4.25% range.  Using 4.125% as the prevailing primary rate, the primary/secondary spread is 108bps which is down from 115bps the previous week.  With the move rates, lenders reported, on average, that locks were up 5-10% last week.

In agency swaps, current coupon Gold/Fannie swaps were little changed on the day while Ginnie2/Fannie swaps continued on their recent move lower.  The Gold/Fannie and Ginnie2/Fannie 4.0% swaps are currently trading -1/32 and +16.5/32, respectively.  At 5:00pm, FNCL (30yr) 4.0s in June were +11/32 (105-04) and FNCI 3.0s in June were +5.5/32 (102-21+).

This morning, treasuries are trading a bit lower across the curve following Friday’s rally.  The 2yr is -0.5/32 (1.299) and the 10yr is -3/32 (2.336).


The rally in the market on Friday was largely data driven.  A weaker than expected reading on the April CPI struck a bit more of a dovish tone and fed the rally as inflation remains below the Fed’s stated target.

Market Updates provided by Rheim Penman

Mortgages outperformed treasury hedges trading 2+/32nds tighter on $2B in origination supply and buying from the Fed and real money accounts. Rolls were the big movers on 72-hour day with the FN30 3.5 and 4.0 rolls closing 0.25/32nds lower. Both rolls are opening 48-hour day higher with the 3.5 roll at 6+/32nds and the 4.0 roll at 7.375/32nds. GD/FN swaps were better bid as FN rolls were hit harder than the Gold rolls. The GD/FN 3.5 swap is now +1/32 (FR favor).

“No Fear” is the new motto for investors according to the CBOE Volatility Index (VIX) which is designed to measure investor expectations for market turbulence one month in the future. The VIX was measured at its lowest level since 1993, despite months of geopolitical turmoil, as investors take comfort in strong corporate earnings, a robust jobs market and the election of Emmanuel Macron in France. The VIX fell to 9.77, on Monday, and typically moves inversely to stock prices. Recently the VIX has not been behaving as expected and has been trading below its long-term average for months. This has some investors thinking the market has become too complacent and the prolonged period of low volatility may be the “calm before the storm.”

The S&P and Nasdaq hit new records on Monday while the DJIA saw a slight gain. The DJIA was +5.34 to 21012.28 while the S&P was +0.09 to 2399.38 and the Nasdaq was +1.90 to 6102.66. Technology stocks lead the gains with Apple closing at a record high of 153.01 after Berkshire Hathaway disclosed that it had doubled its stake in the Cupertino, CA company. Apple’s total market capitalization is $800B and is the first US company to cross that threshold. For scale, Alphabet (Google) has a market cap of $652B, Amazon has a market cap of $451B, and Exxon has a market cap of $350B.

The Fed is scheduled to buy $1B in G2 securities at 11:15am.

Market Updates provided by Rheim Penman

Yesterday, mortgages were 3/32 tighter to treasuries (outperform) with origination supply coming in at ~$2.0B for the day.  Treasuries finally got some relief as the White House’s tax plan lacked the clarity that market was looking for.  For the day, benchmark 10-year notes rose 7/32 pushing yields to 2.31%., while 30-year bonds were 11/32 higher pushing yields to 2.96%.  In the MBS space, the FN 30 year 3.5s in May rose 5+/32 (102-20) while FN 15 year 3.0s were up 2+/32 (102-23+). The 30 year Gold/FN spreads were unchanged in the 3.5% coupon at -.5/32.  The 15 year Gold/FN spreads were also unchanged in 3.0% coupon at .5/32.

Lenders are reporting that 30 year primary rates are in the 4% to 4.25% range. As far as a 30 year best execution analysis goes, in general these note rates are slotting into a 3.5% coupon with 4% and 4.125% executing via a buydown, and the 4.25% executing via a buyup.

In Wednesday’s news, the White House provided a high level outline for its proposed tax cuts, which seem to benefit business, middle class and certain high-earning individuals.  The main component would be a reduction in the corporate tax rate from 35% to 15%.  For individuals, it would cut the top rate from 39.6% to 35% and condense the seven income-tax rates to three.  It would also remove a 3.8% income tax for individuals making more than $200K a year, end the alternative minimum tax and get rid of estate tax for select net worth buckets.  The market response was rather muted as the plan did not lay out any details as to how the proposed plan would be paid for, which is obviously a major component of the new structure.

On Wednesday, stocks were slightly in the red for the trading session as investors lost their appetite for higher risk assets.  The Dow fell 21.03 points, or 0.1%, to 20,975.09, the S&P 500 lost 1.16 points, or 0.05%, to 2,387.45 and the Nasdaq dropped 0.27 points, or 0%, to 6,025.23.

Market Updates provided by Rheim Penman

Treasuries traded higher in price yesterday (up 17.5/32nds), absorbing a $20B 10-year auction that tailed 1.2bps.  The tail normally would indicate weakness, but the earlier treasury rally eliminated the concession and participation was fairly typical.

Current coupon mortgages kept pace with treasuries, trading tighter with origination supply of around $2.4B, above the five-day average volume of $2.1B.  Spreads were helped by a $1.18B 30-year Fed Operation, spread across 3.5 and 4% coupons.  The Gold/FNMA swap in 3.5% closed 1/32nd tighter from the prior day (-1/32nds), while 4.0% closed unchanged (-1+/32nds).  At 5:00pm, the FN 30 year 3.5% (Apr) was up 12.5/32nd (102-21+) and the FN 15 year 3.0% (Apr) was up 9/32nds (102-28+).

This morning we’ve seen last week’s weekly mortgage application activity from the MBA. The survey, which the MBA states covers 75% or retail originations, showed apps +1.5% last week but still 21% lower than this week last year. Refis are down 40% from a year ago.

In an informal survey of lenders, lock volumes were up 10-20% week-over-week, driven by spring seasonals and the persistent lower rates in treasuries.  Primary 0 point 30 year rates are in the 4.125-4.25% range; most lenders are ~.125% lower this week.  Using 4.25% as the prevailing rate, the primary/secondary spread is 120 bps, which is unchanged from the prior week.

Risk-off was the trade du jour yesterday as escalating tensions in several parts of the globe sent treasuries and mortgages higher in price.  Stocks traded lower after the White House press secretary issued a warning to Syria about further acts of aggression against civilians. In addition, the President threatened to take action against North Korea if China did not, and Secretary of State Tillerson urged Russia to drop its backing of the Assad regime in Syria, ahead of his visit with Russian foreign minister.

The cumulative effect was the Dow Jones Industrial Index, the S&P 500, and the Nasdaq all trading lower for most of the day before finishing relatively flat, while the 10 year UST yield dropped to 2.30% from 2.35% the prior day.

There is a $525M 15-year Fed Operation scheduled for today.

Market Updates provided by Rheim Penman


MBS performed quite well throughout yesterday’s rally, but gave up some traction following the $1.2B worth of 30-year Fed purchases. At 5:00pm, the FN 30 year 3.5% (Apr) was +13+/32nds (102-22+) and the FN 15 year 3.0% (APR) was +7+/32nds (102-24+). In Gold/FNMA swaps, FN’s outperformed FG’s in both the 3.5% and 4.0% CPN and both swaps ended the day in Fannie’s favor. In Ginnie 2 markets, many hoped that the start of the Japanese fiscal year would reignite demand, however they were left disappointed as G2 securities continued their underperformance.


Yesterday markets reacted strongly to a myriad of economic data and news. While headline manufacturing data printed in-line with expectations, the employment index increased by over 4.5 points and prices paid increased by 2.5 points causing the bond market to rally substantially. This latest data further supports that inflationary pressures are substantiating in the economy as employment and prices paid hit levels not seen since 2011. In Russia, markets were digesting a horrific attack in the subway system of St. Petersburg, where at least 14 people were killed and many more injured by an explosion.


On the day, domestic equities lacked conviction and ended up closing slightly in the red.


Treasuries rallied on the day driving the 10-year yield down to 2.31%, further supporting a resistance level which has been approached four times this year.


In Fed speak, Philadelphia President Harker, speaking at the University of Pennsylvania, reiterated his comments that the Fed should raises interest rates two additional times this year in order to avoid being “behind the curve” and then have to rush in drastically to normalize interest rates.

Market Update provided by Rhiem Penman

On Friday mortgages closed slightly tighter to treasuries and several ticks tighter to swaps.  FN30 3.0’S closed up 3 ticks while 3.5’s and 4.0’s were up 2/32nds.  The street reported $1.67B in origination volume on Friday, slightly below the 56 day average of $1.75B.  MTD volume is at $39.0B.

The Federal Reserve Bank is scheduled to purchase a total $3.775B in agency MBS this week, $1.975B in GNMA’s and $1.800B in conventional.  Today’s activity includes $1.125B in GNMA-II 3.0’s, 3.5’s, and 4.0%.

There are no Fed speakers scheduled today however Chair Janet Yellen is scheduled to speak Tuesday at the National Community Reinvestment Coalition Annual Conference and Fed Governor Jerome Powell is also scheduled to speak Tuesday.  On the supply side, the Treasury is scheduled to auction $26B in Two-year notes today and $34B in Five-year notes tomorrow.

The big news from Friday was the lack of a vote on the health care bill. The news moved prices lower after the 3PM (noon PT) future’s close due to reports that AHCA had been pulled due to shortage of votes. What happens now is anyone’s guess, and plenty of pundits are saying tax reform should have been tackled first. With the health care bill setback, it may be tougher to gain momentum to do much to taxes. Regardless, the “risk-off” trade is gone, and money is flowing into the “defensive” bond markets – helping rates. The thinking that is President Trump’s inflationary economic ideas may not move through Congress easily.

Market Update provided by Rheim Penman

On Tuesday, current coupon MBS outperformed treasuries by ~1/32nds.  Mortgage originations continue to be down finishing the day at $1.9B. Today, the Fed investment operation focus will be on Fannie and Freddie securities, purchasing $1.15B of 30yr product. In agency swaps, the Gold/Fannie 3.5’s moved higher increasing by.50/32nds to .50/32nds, the 4’s and the 4.5’s remained unchanged at flat and-3.5/32nds respectively.  The Ginnie2/Fannie 3.5 swap closed at 41/32nds.  At 5:00pm, the FNCL 3.5’s were up by 13.5/32nds closing at 102-02+ and FNCI 3’s were up by 10.5/32nds closing at 102-15+.

The MBA Mortgage Application index was released earlier this morning and showed a decrease of 2.7% for the week ended March 17 after rising 3.1% in prior week. Purchase applications were down 2.1% after rising 2.3% in prior week.  Refi applications were down 3.3% after rising 4.1% in prior week.

Equites closed lower on yesterday, the S&P 500 was down 29.45 points ending at 2,344 ,the DIJA was down 237.85 points ending at 20,668, and the NASDAQ was down 107.70 points ending at 5793.  Stocks took a tumble yesterday as questions grew about the ability of President Trump’s policies, notably healthcare, to make it through Congress.

Market Update provided by Rheim Penman

Mortgages were mostly flat to treasuries after the NFP report, a decent sign of stability as they had leaked wider into the sell-off during the week.  Supply was robust with originators selling $2.5B without the forced convexity selling that exacerbated the weakness during the week.  Hedges have moved solidly up in coupon to 4.0s and 4.5s with originators posting 4.375% to 4.5% as their primary rates.

The jobs numbers Friday morning did not disappoint as the US added 235,000 new jobs in the month of February, more than consensus estimates of 200,000.  An unusually warm February, the warmest on record in over 60 years, helped construction workers gain jobs that typically start later in the year.  Other releases of note on Friday saw the unemployment rate fall to 4.7% while participation up ticked to 63%, a good sign that entrants to the work force are able to find a position.  The report all but guarantees the Federal Reserve will hike interest rates by 0.25% on March 15th and begs the question how many more hikes could be on the docket for 2017.

Stocks gained 0.3% with the S&P ending at 2,372.90, paring some of the slide seen earlier in the week.  Bond prices increased with the yield on the 10-yr note falling to 2.58%, below the 2.60% that Bill Gross says triggers a bear market in fixed income.