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.