When someone asks a salty old bond market person why rates are doing what they'd doing, they might get a seemingly dismissive reply: "supply and demand!"  No duh, salty old bond person.  Of course supply and demand is going to determine the price of almost anything, but we were looking for the factors underlying the supply and demand.  And the salty old bond guy might reply: "No, dummy.  I mean SUPPLY and demand!  Look:  https://home.treasury.gov/news/press-releases/sm1001 " In other words, the conversation would concern the actual announcement of additional supply.  Granted, a certain amount of supply is always to-be-expected when it comes to the bond market.  Moreover, we already knew that Treasury supply would have to increase substantially in order to finance the coronavirus relief efforts (not to mention the revenue shortfall).  But we didn't know exactly how that supply would look. As it happens, Treasury is explicitly stating a preference to push more of the supply "out the curve" to longer duration securities.  The additional of brand new 20yr bonds was all we needed to confirm such a thing, but they've upped amounts across the board (more long duration supply = bad for the rates we care about). That's $43 billion additional dollars on the supply side of the equation in May.  And keep in mind, these are " anticipated " changes.  It's not uncommon to see them drift higher in the future.    The net effect has been immediate and obvious. While the longer-term chart doesn't look too troubling at the moment, we need to be cautious here.  In a sideways environment where we're unavoidably waiting on market movers that can't possibly arrive any time soon, traders love to jump on opportunities to create some volatility .   Money managers now have to reposition for higher-than-expected supply in longer-dated Treasuries.  That process can't play out in a few minutes.  Many of them will sell now in the hopes of buying more cheaply in the future. Ultimately though, the coronavirus situation will be the key underlying narrative for the bond market.  As long as it offers massive suppression of the global economy, it will be hard for rates to spike as quickly as they did in March.  The other positive caveat is that this will naturally affect Treasuries more than MBS (but it will still affect MBS).

May 6, 2020 Download our Mobile App: Download our Mobile App: MBS Commentary MBS Live Day Ahead: Can Bonds Weather Supply Storm? When someone asks a salty old bond market person why rates are doing what they'd doing, they might get a seemingly dismissive reply: "supply and demand!"  No duh, salty old bond person.  Of course supply and demand is going to determine the... (read more) Rob Chrisman Warehouse, Pricing Products; Agency and Investor Changes; Rates Quiet May 6th, of course, is the anniversary of the first tequila hangover. Alcohol consumption has increased as people continue to adapt to the working from home “Groundhog Day.” Yes, adapting. How about this doctor who adapted by handing out ... (read more) Housing News Purchase Volume on Three-Week Winning Streak Applications for purchase mortgages increased for the third straight week, keeping overall activity during the week ended May 1 virtually unchanged from the previous week. Refinancing, while drifting lower, still provided the largest share of the mar... (read more) Housing News Agencies are Cutting Access to Mortgage Data for Low-Income Borrowers Two Urban Institute (UI) analysts have raised an alarm about changes to federal regulations that threaten to limit access to important data about the mortgage market and credit availability for low and moderate-income borrowers and communities. Most ... (read more) Mortgage Rate Watch Cost of Imperfection Remains High in The Mortgage World Mortgage rates moved off their recent lows to start the new week, but only slightly. That keeps the average lender very close to the lowest rates in roughly 2 months. It also keeps us fairly close to the lowest rates ever. In fact, some lenders were ... (read more) Housing News Home Price Growth Slows, Mostly Unchanged in April CoreLogic's Home Price Index for March showed that the spring market started out strongly, with price appreciation from the previous month of 1.3 percent compared to a gain of 0.6 percent from January to February. The annual increase was 4.5 percent,... (read more) Mortgage Rates 30 Yr. Fixed Rate 6.75% +0.02% Rate Change Points Mortgage News Daily 30 Yr. Fixed 6.75% +0.02 0.00 15 Yr. Fixed 5.98% +0.01 0.00 30 Yr. FHA 6.27% +0.02 0.00 30 Yr. Jumbo 6.85% +0.01 0.00 7/6 SOFR ARM 6.32% -0.01 0.00 30 Yr. VA 6.29% +0.03 0.00 Updates Daily - Last Update: 7/3 15 Yr. Fixed Rate 5.98% +0.01% Rate Change Points Freddie Mac 30 Yr. Fixed 6.67% -0.10 0.00 15 Yr. Fixed 5.80% -0.09 0.00 Updates Weekly - Last Update: 7/3 Rate Change Points Mortgage Bankers Assoc. 30 Yr. Fixed 6.79% -0.09 0.62 15 Yr. Fixed 6.06% -0.05 0.67 30 Yr. Jumbo 6.78% -0.10 0.40 Updates Weekly - Last Update: 6/26 MBS / Treasuries UMBS 30YR 5.5 99.72 +0.08 Price / Yield Change MBS UMBS 5.5 99.73 +0.09 UMBS 6.0 101.52 +0.09 GNMA 5.5 99.93 +0.08 GNMA 6.0 101.42 +0.08 Pricing as of: 7/6 10:23PM EST 10 Year US Treasury 4.3339 -0.0128 Price / Yield Change US Treasury 2 YR Treasury 3.855 -0.028 5 YR Treasury 3.911 -0.026 7 YR Treasury 4.102 -0.023 10 YR Treasury 4.330 -0.017 30 YR Treasury 4.860 -0.003 Pricing as of: 7/6 10:23PM EST Latest Video US puts 20-year bond up for auction on May 20, first time in over 20 years Homebuyers are coming back ADP: Private payrolls fall by 20.2 million in April as Covid-driven layoffs... St. Louis Fed's Bullard: We expect a very sharp increase in unemployment Around the Web CNBC This is the jobs number that will show how fast the labor market can heal CNBC Here's what you need to know about rent relief during the pandemic Reuters Fed's lending programs aren't for insolvent oil drillers, Dallas Fed's Kaplan says CNBC WHO says 'there can be no going back to business as usual' after coronavirus pandemic NPR EU Faces 'Recession Of Historic Proportions,' Economic Forecast Warns Calculated Risk Blog Las Vegas Real Estate in April: Sales down 33% YoY, Inventory down 16% YoY CNBC Small businesses loans are not going proportionately to the hardest hit areas, Fed study shows Reuters As central banks break the junk debt barrier, investors will follow NAHB Eye on Housing Time Spent Searching for a Home Continues to Rise US Treasury QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH Reuters Fed's Bullard: Drop in U.S. payrolls 'not a surprise' given shutdowns - CNBC CNBC US private payrolls drop by 20.2 million in April, the worst job loss in the history of ADP report Reuters Fed policymakers see slow, uneven U.S. recovery after coronavirus downturn

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