Morning Report: Is the post-Brexit rally over? 7/11/16

Vital Statistics:

Last Change
S&P Futures 2128.0 8.0
Eurostoxx Index 324.3 2.1
Oil (WTI) 45.6 0.4
US dollar index 87.1 0.1
10 Year Govt Bond Yield 1.41%
Current Coupon Fannie Mae TBA 104
Current Coupon Ginnie Mae TBA 104.2
BankRate 30 Year Fixed Rate Mortgage 3.57


Stocks are up this morning as overseas markets rally. Bonds and MBS are down.

Friday’s huge payroll print was largely due to seasonal adjustment factors. The unemployment rate rose, hourly earnings barely budged and the labor force participation rate inched up only slightly. The right thing to do is to take May’s 11k number and average it in with June’s 287k number to get a more realistic run rate.

There isn’t much in the way of market-moving data this week – the week after the jobs report is invariably data-light. Earnings season kicks off this week, and the next two weeks will be dominated by bank earnings.

Morgan Stanley is making the call that the post Brexit bond market rally is largely played out. “After having been bullish, we turn neutral on bonds as G4 yields sit at all-time lows,” Morgan Stanley analysts including Matthew Hornbach, the head of global interest-rate strategy in New York, wrote in a report July 8. That said, the increasing amount of negative yielding paper will continue to push up Treasuries in the US, as investors sell bonds yielding nothing to buy bonds yielding something. This will also lower borrowing costs for Corporate America.

Don’t forget the last time bond yields bottomed out (2012) it took mortgage rates another 4 months to bottom out as well. We should probably see a similar effect going this time around.
Mortgage delinquency rates ticked up in May, according to the latest Black Knight Financial Services Mortgage Monitor. Some of this is apparently seasonally driven. Interesting stat: From 2009-2012, over 80% of borrowers that refinanced a GNMA loan refi’d back into another GNMA product. Post 2013, GN back into GN refis have dropped below 50%. Increasing home equity and higher MI premiums are pushing borrowers out of GN products.

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