Should be a quiet day as eyes turn towards next week.

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Published Date 7/23/2021

The first trading this morning in the MBS markets prices were down 19 bps from yesterday. The 10-yr. note traded at 1.30%, and by 9 am ET MBS prices were rebounding, down just 9 bps, while the 10 hit 1.29%, +2bps. The 10-yr. note is continuing to test its technical support at 1.30%. US stock indexes yesterday were generally unchanged on the day. This morning in futures trading the NASDAQ and S&P remained unchanged, while the DJIA +176 at 8:45 am.

There isn’t anything on the calendar today that will have an impact on markets. The main focus now is next week’s FOMC meeting on Tuesday and Wednesday. The focus on the meeting is what comes out of it about tapering of the $120B a month of Treasury and MBS purchases. It's coming, and markets are beginning to prep for it. It’s the timing and how quick the Fed will cut its buying. Present consensus is the first tapering move that will begin early next year. In the meantime the Fed will be spooning out comments and make sure it won’t come as any surprise when it begins. The first tapering will likely begin with MBSs. Some Fed officials are advocating for that approach to cool the housing market.

The FOMC is expected to hold rates near zero and continue the monthly purchase of $80B in Treasuries and $40B in mortgage securities. Officials have pledged to maintain bond buying until the economy shows “substantial further progress” on inflation and employment as it recovers from Covid-19. Powell continues to believe the economic outlook is shaky and not yet able to stand on its own feet without the Fed keeping rates low and so far his comments on tapering have been moderate. Correction; yesterday we noted the Fed would release its quarterly forecasts at next week’s meeting, but we found the forecasts will be released at the August meeting.

The new fears of renewed lockdowns and mask-wearing as the Delta virus spreads is hanging over markets. So far most of the forecasts are holding.

Later today the Biden administration will release plans to expand assistance programs for borrowers who fell behind on their mortgages during 2020 and continue to face economic hardship -- a bid to prevent a sharp rise in foreclosures over the coming months. New modification options will be offered for borrowers with Federal Housing Administration loans and other federally guaranteed mortgages. The changes would aim to extend the length of their mortgages and lock in lower monthly principal and interest payments to keep more borrowers in their homes.

At 9:30 am the DJIA opened at +173, NASDAQ at +44, and the S&P at +19. The 10-yr note at 9:30 am ET stood at 1.30%. The FNMA 2.0 30-yr. Coupon was down -12 bps from yesterday’s close and up +8 bps from 9:30 am ET yesterday; the 2.5 FNMA coupon was lost -6 bp, +13 bps from the same time yesterday.

One data point today; July PMI composite FLASH (preliminary) index is at 59.7, down from 63.9. The manufacturing index, expected at 62.1, increased to 63.1. The services index (thought to be 64.6) dropped to 59.8.

The 10-yr. note continues to find support at 1.30%. MBS prices are choppy but holding and likely will continue to follow the 10 as they always do. A close above 1.30% will take a lot of the bullish steam away, but with concerns increasing over the Delta spread it is unlikely interest rates will change much ahead of next week’s FOMC meeting.

Source: TBWS

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