If you haven't seen the details of the over-the-weekend emergency Fed announcement, read this: http://www.mortgagenewsdaily.com/mortgage_rates/blog/938839.aspx.  If you need a piece to hand out to people who don't understand what this actually means for mortgage markets (or if that's you, which is OK too), read this: http://www.mortgagenewsdaily.com/consumer_rates/938844.aspx.

If you don't click links (and you should make an exception with the above if you said "yes" to either question), here's the gist:

  • The Fed was going to cut rates to zero this Wednesday and announce a QE package, but they did it via emergency meeting/announcement on Sunday 
  • The QE package included plenty of Treasury purchases, but also threw a bone to MBS
  • $200bln of new MBS purchases + $20bln in reinvestments from portfolio proceeds (these had been going into Treasuries)

That might sound like a lot of MBS, but it's not even 2 months' worth in this environment (assuming the pace of origination would be maintained... not a given).  It is, however, extremely helpful for the ability of the mortgage market to keep pace (better pace, anyway) with Treasury benchmarks.  

That said, I wish the Fed would have merely offered reassurance about potential MBS purchases and waited to pull the trigger for a few days so we could have seen how this morning would have traded without them.  Clearly, buyers have the money and the ability to bring prices back up because prices are already close to 2 full points higher from Friday and the Fed buying doesn't start until later this morning.

If we had to guess what the effects of a Treasury rally + big, guaranteed buying from the Fed would do to the chaos seen in MBS last week, we very well may have pinned the tail on this donkey somewhere better than halfway back to the recent highs.  It feels logical from a "warm bowl of porridge" standpoint.  And doesn't warm porridge always just sound so great?

20200316 open

So the bleeding has been stopped in the mortgage bond market.  About half of the MBS spread blowout seen since things got crazy in bonds has been reversed overnight.  From here, the question is whether or not lender rate sheets will reflect nearly as much of the love. For sure they will reflect some, but it certainly won't be most of it, and it will certainly take time for things to move back to any semblance of the all-time lows seen a week ago this morning.

As for the rest of the week in terms of scheduled data, frankly, who cares?  Answer: no one.  Data is nothing.  Well, let me rephrase: flat to positive data is nothing.  Super weak data is confirmation of how screwed the world is.  China's econ data for February overnight was cosmically awful (this is proof that computers have more to do with forecasts than people and intuition.  The forecasts were the most shocking thing here):

  • Industrial Output
    • -13.5 vs +1.5 forecast 
  • Retail Sales
    • -20.5 vs +0.8 forecast
  • Urban Investment
    • -24.5 vs 2.8 forecast

So for those wondering how much a stringent coronavirus lockdown can impact an economy, there you go.  And even if the US economy doesn't take that sort of beating, we have a sort of big trade relationship with China, so we would take a hit either way.  

Expect volatility this week as global financial markets try to figure out how big the global recession will be.  Expect the Fed to help bonds, but not to wave a magic wand for many of the frustrations that will ensue.  Don't be surprised to see MBS frustrate you a few more times before the week is over.  Don't be surprised if rate sheets don't snap back quite as much as you'd expect.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
UMBS 2.5
102-02 : +1-16
10 YR
0.7420 : -0.2120
Pricing as of 3/16/20 9:42AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Sunday, Mar 15
17:00 FOMC rate decision (%)* N/A 0.875 1.125
Monday, Mar 16
8:30 NY Fed Manufacturing Mar 4.00 12.90
Tuesday, Mar 17
8:30 Retail Sales (%)* Feb 0.2 0.3
9:15 Industrial Production (%) Feb 0.4 -0.3
10:00 Business Inventories (% ) Jan -0.1 0.1
11:00 NAHB housing market indx Mar 73 74
Wednesday, Mar 18
7:00 MBA Purchase Index w/e 280.7
7:00 Mortgage Refinance Index w/e 6418.9
8:30 House starts mm: change (%) Feb -3.6
8:30 Housing starts number mm (ml) Feb 1.500 1.567
8:30 Building permits: number (ml) Feb 1.500 1.550
8:30 Build permits: change mm (%) Feb 9.2
Thursday, Mar 19
8:30 Philly Fed Business Index * Mar 10.0 36.7
8:30 Jobless Claims (k) w/e 220 211
10:00 Leading index chg mm (%) Feb 0.1 0.8
Friday, Mar 20
10:00 Existing home sales (ml)* Feb 5.50 5.46
10:00 Exist. home sales % chg (%)* Feb 0.7 -1.3