American Pacific Mortgage

Good Morning Aside from the mixed covid-related headlines, incremental news was minimal yesterday. Treasuries came for sale following a lackluster 5-year auction. C The Fed auctioned $49bn at .288% vs .281% WI (when issued) yield. Although demand slowed, the stop-out yield was still the lowest level on record and 5bps lower vs June’s auction. Additionally, the bid-to-cover ratio came in at 2.32 vs an average of 2.49 in the previous six auctions. The tepid demand pus...Continue reading

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Good Morning In Wednesday’s economic news, Empire manufacturing was released and showed a third straight month of advancement. The index jumped to 17.2 versus a prior month of .2 and an estimate of 10.0. Any reading above zero is a signal of an expanding economy. The release provides some evidence that the economy is starting to reopen as orders and shipments continue to rise. In other news, June industrial production produced the biggest monthly move since 1959, prov...ing further support that manufacturing is coming back to life after the recent economic shutdown. Production has ramped up rather quickly as factories throughout the United States have started to reopen. Today is rather busy on the economic news front as retail sales and initial jobless claims will be released at 8:30 am Eastern, followed by Bloomberg consumer comfort at 9:45 am Eastern. Yesterday, mortgages were once again 2 ticks tighter (outperform) with origination supply coming in at $7.1 billion. For the day, the UMBS 30 year 2.5s were up a plus at 104-17, UMBS 15 year 2.0s rose 1.5 ticks at 103-19+ but GNII 2.5s lost 1.5 ticks at 105-18+. Federal Reserve MBS purchase operations scheduled for today include 30-year Uniform MBS 2.0-3.0%, totaling $5.0 billion and 15-year Uniform MBS 2.0-2.5% totaling $868 million. Treasury prices were lower yesterday -- benchmark 10-year notes were down 6 ticks with yields at .63%, while 30-year bonds fell 27.5 ticks pushing yields up to 1.34%. On Wednesday, stocks ended the trading session in positive territory. Stocks seemed to be driven by news from Moderna Inc. after the drug maker reported promising results as they work towards a coronavirus vaccine. Goldman Sachs also posted earnings, blowing away Wall Street expectations coming in at $6.26 a share versus an estimate of $3.94. The numbers were driven primarily by trading revenue for stocks and bonds, which jumped 93 percent from the previous release. The Dow rose 0.85% to end at 26,870.03 points, the S&P 500 gained 0.91% to 3,226.55 and the Nasdaq climbed 0.59% to 10,550.49. This morning, stock futures are pointing upwards with the Dow at +446, the S&P at 42, and the Nasdaq at 85.

Good Morning In Friday’s economic news, June Producer Price Index (PPI) was released and showed that prices paid to U.S. producers unexpectedly dropped in June for the fourth time in five months. Basically, pricing power has dramatically faded, driven primarily by the coronavirus. Although the economy is showing signs of stabilizing, companies may delay raising prices in an attempt to re-establish sales. Today is relatively quiet on the economic news front as no major... releases are scheduled. Looking forward, this week’s MBS-related economic releases include MBA mortgage applications on Wednesday, NAHB housing market index on Thursday, and housing starts and building permits on Friday. On Friday, mortgages were 3 ticks wider (underperform) with origination supply coming in at $9.8 billion for the day. Treasury prices were down as Gilead Sciences reported that data from a late-stage study showed that its antiviral drug Remdesivir significantly improved clinical recovery and reduced the risk of death in patients with the COVID-19 virus. For the day, benchmark 10-year notes were down 11.5ticks, pushing yields up to .64%, while 30-year bonds fell 18.5 ticks with yields at 1.33%. MBS prices were also lower with the UMBS 30 year 2.5s in August dropping 4 ticks to 104-09, GNMA 30 year 2.5s in July losing 12.5 ticks to 105-13 while UMBS 15 year 2.0s in July falling 3 ticks to 103-22. On Friday, stocks closed the trading session in positive territory after the Gilead Sciences news hit the market. Although the United States has been facing a record rise in coronavirus cases, the analysis seemed to calm investors. The Dow rose 369.21 points, or 1.44%, to 26,075, the S&P 500 gained 32 points, or 1.05%, to 3,185 and the Nasdaq added 69.69 points, or 0.66%, to 10,617. For the week, the Dow rose 1%, the S&P 500 gained 1.8% and the Nasdaq jumped 4%. This morning, stock futures are pointing upwards with the Dow at +200, the S&P at 21, and the Nasdaq at 90.

Good Morning The number of Americans filing for first time unemployment benefits fell nearly 100k last week, marking the 14th straight weekly decline since the end of March. Continuing claims fell nearly 700k to just over 18 million people in a sign that recent spikes in covid infections have yet translated into new layoffs. Amid renewed fears of increasing infections in the US and parts of Asia, the 2020 election came back to center stage yesterday with the Supreme Cou...rt issuing two rulings related to President Trump’s tax returns. In a 7-2 decision the court ruled that a New York grand jury can have access to the records, but in a separate decision rejected House Democrats efforts to subpoena the same. Even if the records are never publicly disclosed, this all but ensures three months of bitter partisan politics at a time the market is looking for unity fighting covid. Meanwhile, former Vice President Biden unveiled some of his plans to help rebuild the economy if he becomes president. In addition to $700 billion in infrastructure and technology spending, Vice President Biden said he would raise the corporate tax rate back to 28% and end the era of shareholder capitalism. The market didn’t seem to like either of these developments, with the DOW dropping 300 points as the Supreme Court decisions were hitting the wire. As soon as the stock market headed south, treasuries caught a bid, with the 10-year rallying 14 ticks pushing the yield down to 0.61%. Meanwhile the Treasury sold $19 billion of 30-year bonds on Thursday at a high yield of 1.33%, which is only 1 bps above the all-time low yield. Perhaps in a sign that the rest of the world is resigned to a global recession, demand for the 30-year auction was very strong with indirect bidders (think foreign central banks) taking 72% of the pie. Mortgages had another strong day tightening several bps led by lower coupons as UMBS 2.0s pushed through 103-00 in the front month. Fed operations, combined with their reinvestment needs for paydowns and bank buying, easily offset another $8 billion plus origination day. I never thought I’d say this, but could it be that 30-year 1.5s are on the horizon? It is a good thing the Fed apparently does not worry about extension risk. Equity futures are pointing to a lower open in the US, while shares in Europe and Asia are up roughly 0.5% across the board led by technology stocks. We receive June Producer Price data this morning, but no other material economic news so traders will be watching covid headlines. This has been a rough week for everybody so take some time to decompress after the close. Be safe (wear a mask and wash your hands for least 20 seconds), stay healthy and have a great weekend!