Mortgage Market Update 3-30-20

Mortgage Bonds are higher as the market continues to stabilize through the Fed’s Unlimited QE effort. In talking with clients, the Fed’s QE or bond buying is not designed to lower rates (although that might very well happen over time) – but to provide liquidity and get the MBS market to trade smoothly. It is working thus far as each day we are seeing better trading patterns.

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words: the ease of converting it to cash. This is what the Fed is doing everyday by buying $50B in Mortgage-Backed Securities – adding liquidity.

The Fed buying will take place from 9:15 a.m ET – 9:45, 10:15 – 10:45, 11:15 – 11:45, 1:00 – 1:30, 2:00 – 2:30 p.m. ET. The broad shutdown of businesses, due to the virus, across the country is slowing growth and like Fed Chair Powell said yesterday, the U.S. could be in a recession now. However, Mr. Powell went on to say that there could be a ‘good rebound on the other side of this’ and ‘there is nothing fundamentally wrong with our economy.’ We couldn’t agree more. Just a little over 20 business days ago U.S. stocks hit all-time highs while business optimism was near all-time highs.

After three days of gains, stocks are lower – which is not surprising, especially heading into a weekend where headline risk can emerge. The Dow ‘s three-day rally saw a 21% gain, the largest three-day percentage gain since 1931. The yield on the 10-year T Note has declined to .74% as stocks plunge this morning. Friday’s have been kind to bonds as traders like the relative safety heading into an uncertain weekend.

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