Morning Report: A rebound in the markets

Vital Statistics:

Stocks are higher this morning after yesterday’s violent sell-off. Bonds and MBS are down.

Despite the huge drop in bond yields yesterday, mortgage rates only improved by 4 basis points. It seems like the main buyers in the TBA market are originators adjusting their hedge positions. Pipelines are full, and most people are building in more margin on their rate sheets. I can’t imagine sub 2% yields for a security with pretty heavy interest rate risk is going to entice many bond funds.

If you called Bank of America to get a refinance yesterday, there was a two-hour wait to speak with a loan officer. Lenders are inundated with business right now. “Demand has ramped up in a way that many lenders have never experienced,” said Matthew Graham, chief operating officer at Mortgage News Daily, which tracks rates every morning. “Some of them have taken to raising rates in order to deter new business.  Others have completely stopped accepting new applications.” Once rates stabilize and the margin calls / fallout fears recede, the industry is going to feast. 2020 will probably break records.

The VIX (which is the CBOE volatility index, a measure of fear in the market) spiked over 60 yesterday, which is the highest since the financial crisis. Anyone remember what the spike in February 2018 was all about? The market had the worst 1 day point decline in history up until that point. How about the one in August 2015? The Dow lost 1,000 points and the S&P lost 120 in one day. If you search the news stories, the sell-offs are attributed to some bad economic number out of China, or something else transitory. Who knows, in two years we might look back at this sell off and scratch our heads wondering what was going on.

Small business remained optimistic in February, according to the NFIB. The survey pre-dates the market freakout and Fed cut, so maybe it is too early to see an impact from Coronavirus. “The small business economic expansion continued its historic run in February, as owners remained focused on growing their businesses in this supportive tax and regulatory environment,” said NFIB Chief Economist William Dunkelberg. “February was another historically strong month for the small business economy, but it’s worth noting that nearly all of the survey’s responses were collected prior to the recent escalation of the coronavirus outbreak and the Federal Reserve rate cut. Business is good, but the coronavirus outbreak remains the big unknown.”

The White House is looking at a payroll tax cut to ease the pain of Coronavirus. Other measures being considered involve paid sick leave for those who become ill. This is in addition to the big spending bill that was just passed.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray