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.

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