MBS RECAP: Sobering reminder of the rising interest rate trend
By yesterday afternoon, the bond market had managed to tie together some of the most comforting days of 2021. The 10-year returns were close to 1.50% at the end of the day, and the next significant cap of 1.62% seemed safely above the head. But just hours after the new trading day began, the 10-year yield rose to 1.64+, the highest level in more than a year. Average mortgage rates are nearly able to say the same thing (their highest in 11 months). Today’s router provides a wake-up call regarding the nature of the environment with increasing rates.
Econ data / events
Fed MBS purchase 10 a.m., 11:30 a.m., 1 p.m.
Core producer prices (year-on-year) 2.5 vs 2.6 f’cast, 2.0 prev
Market Movement Review
Much weaker overnight with large hits that come at random times for no apparent reason (speaks for embedded declining dynamics, technical data and positioning). 10 years by almost 7 basis points to 1.604%. UMBS 2.5 coupons drop by a quarter point.
10 years has exceeded the cap of 1.62% and triggered additional stop-loss sales (plus and over 1.63%). UMBS 2.5s were down almost half a point at their weakest level, but have recovered a few ticks in the last few minutes. Definitely not what we were hoping for this morning, on top of the earlier weakness we weren’t hoping for today.
All of today’s damage was done by 10:30 am and things have been very flat since the last update. At this point, anything that happens in the last 2 hours of trading has no material impact on the next week. 10 years are up 10 basis points at 1.63% and 2.5 UMBS are down more than 3/8 of a point at 103.
Discuss the MBS and mortgage markets on our streaming dashboard