Morning Report: Chaos in the TBA market

Vital Statistics:


Last Change
S&P futures 2411 22.4
Oil (WTI) 24.61 2.39
10 year government bond yield 1.01%
30 year fixed rate mortgage 3.84%


Stocks are higher this morning on overseas strength. Bonds are up, while MBS are down.


The MBS market has decoupled from the Treasury market, with weakness across the coupons. It got so bad yesterday that bid/ask spreads widened to about a point and some coupons in the Ginnie space simply stopped trading. Despite a rally in 1.5 point rally in the 10 year, 2.5% TBAs are down half a point. The Fed has taken notice and has directed even more QE money to the sector. They are expected to buy about $35 billion of MBSs today.


The issues in the TBA market are probably due to a few things: First mortgage backed security investors are probably deleveraging. The massive sell-off we saw in the mREIT sector on Wednesday (with some stocks down 50%+) was due to rumors that banks were pulling their repo lines. Also, with the trade deficit (probably) falling with China we are seeing less Chinese purchasing of mortgage backed securities. This is affecting pricing as well.


Fannie Mae’s window pricing took a turn for the worse yesterday as well. Perhaps they are simply full, but take a look at the worse. We are back to mid-January levels. In other words, all the improvement from the emergency rate cuts are gone. Chart courtesy of Optimal Blue.


mortgage pricing


Warehouse banks are beginning to demand huge haircuts on jumbo loans and are rejecting non-QM loans. So forget about those for a while.


European banks are struggling right now, and the fear is that it will spread to the US banks. Deutsche Bank has always been a problem child, and I don’t even want to get started on what the markets think of Italian banks Unicredito and Intesa SanPaolo Imi. This is going to affect US banks and reduce a lot of the risk tolerance in the system.


Home buyers need to bake in more time to close. Meanwhile the industry waits for guidance regarding verbal verifications of employment, and hopes that drive-by appraisals will become acceptable.


48 Responses

  1. From a Canadian medical journal, and this is about Vitamin D and influenza. You can tell by now that my interests have narrowed and my interactions here have increased. This is a function of our STAYING AT HOME all the freaking time.

    Liked by 2 people

    • Hah, my interests have also. What election?

      I’m trying to read mostly updates from my county and state and also science related articles. Walter and I are playing marathon games and will start another puzzle this weekend as well.

      Otherwise I’m starting on my bookkeeping Monday that I generally postpone (procrastinate) until July and August. Also doing spring cleaning and if we ever stop raining here I’ll be working in my garden. I’m cooking a small turkey tomorrow (we were saving it for Easter) and we’re going to pretend it’s a party, probably with Mimosas! Walter goes to the Post Office at night to check our PO Box and then make a deposit at the drive thru if there is a check. We have quite a few customers who owe us money so hopefully they’ll send a check……..LOL I’m still paying our bills without trouble for now as we have money saved for a rainy day. Not sure what’s happening with our tenant. I’m hoping he’s still working as an electrical contractor for Kaiser Permanente. We’re limiting our shopping trips to once a week if possible. Also signed up for InstaCart in case we feel that’s necessary.

      Hope you all have a safe and healthy weekend!

      Here’s yesterday’s report of cases in the US in comparison with other nations, and also at the bottom of the page a graph of testing numbers by country. I think this indicates why government officials in some of the more active spots are concerned. Hopefully, we’ll see that line level out or at least slow down. We won’t know if our social distancing is working until the testing is ramped up so we actually know what we’re dealing with.


  2. The government does something useful (which of course is to repeal their own regulations contributing to the shortage in the first place).

    “Change in U.S. law will make millions more masks available to doctors and nurses, White House says

    The law, signed Wednesday, will let U.S. manufacturers sell N95 masks made for industrial uses to hospitals without fear of liability

    By Jeanne Whalen
    March 19, 2020 at 6:49 p.m. EDT”

    Liked by 1 person


    30000 kits by Monday. $130 ea

    A local distillery is providing hand sanitizer freebies.

    HEB is prioritizing delivery service to the elderly.

    Liked by 1 person

  4. I heard this tonight from a healthcare worker…..

    “I stayed at work for you, please stay home for me.” That’s a very powerful message and applies to all of our essential service workers……….cops, firefighters and even our grocery store workers and those that are still taking care of their babies and toddlers at day care facilities.

    Liked by 1 person

  5. Brent, it is strange to see stocks plummet and MUNI bonds discounted at the same time. You would think a flight to safety would buoy MUNI bonds to a premium.

    Apparently small investors are so panicked they are fleeing to cash. I admit that we fled from equities, but we hold a bunch of MUNYs and MUNY funds, that of course we are hanging onto.

    As we are already into retirement in my case and winding down the practice in Rosanne’s we generally have our long term invested in various annuities, IRAs, and the like, as well as rental units without mortgages, having largely divested from equities previously over a ten year period. Most of the rest is MUNY related now, accept for a REIT I have owned forever and a mutual unit investment trust fund that owns pieces of senior corporate secured loans with near maturities. BTW, that has tanked almost 40% since the February peak, and I have had to calm my wife about it, as it is a very conservative vehicle that should bounce back to a narrow normal range much sooner than later [right? Guess it depends on the mix of companies, but I am assuming hard asset backing for at least 70% of each loan, or the banks are really screwing up].

    Still, it pisses me off that Senators on the Internal Security Committee dumped equities suspiciously near the time they learned this was going to be a hair curler WHILE NOT TELLING THE REST OF US.


    • With the munis, I think some of it might be the revenue source. GO bonds are backed by the taxing authority of the government, but an airport muni for example could face a shortfall.

      With the REIT sector, mortgage REITs got absolutely crushed last week on fears that the banks won’t let them renew their repo lines. Most of these mortgage REITs own government-guaranteed mortgage backed securities so the asset quality is about as good as it gets.

      Mall REITs are gonna struggle, although they have been having issues anyway. Triple net lease REITs might be ok, depending on their tenant mix. If it is a grocery store, no problem. Movie theaters? yes problem. Office REITs are going to struggle if this drags on and a bunch of small companies go out of business. Data REITs will be perfectly fine.

      I am working on a piece for Motley Fool on Annaly Capital. Mortgage REIT which is trading at a 45% discount to book with a 19% dividend yield. 88% of their portfolio is government guaranteed mortgage backed securities. Hope to have it published on Monday.

      Liked by 1 person

  6. In case nobody has posted this:

    View at


    • that was good.

      Liked by 1 person

    • Looks like it has been taken down for “violation of the Medium Rules.” Can you recap it? What rules might it have violated?



        it is here. There was a twitter thread from an epidemiologist who basically tore the article apart. Both are present so you can read it.

        it will be interesting to see when all is said and done who was closer to the truth? this guy or the worst-case scenario types in the media.

        Liked by 1 person

        • There are things in that article that, IMO, are hard to refute and are non-trivial. The point of “look at all the scary red circles”:

          There are lots of ways to represent data. But what data is this giving us really? All sorts of huge red circles make it look like the entire world is dying.

          But ultimately a lot is made of the guy having been with the Romney campaign and not having a biology background, but he spends his entire time talking about data and statistics. If anything, I think he’s not hard enough on the data. Perhaps to paint a rosier picture: things could be looking a lot better or a lot worse (depending on how you define it), but one thing is for sure: we don’t really have a good idea of what the mortality rate is, the frequency and severity of lung scarring (commonly cited as a reason to be fearful and in panic), or how many cases we’ve actually got vs. those that have been confirmed.

          And in reading Bergstrom, the first thing he does is say that Ginn is saying that context doesn’t matter. Which is not what he is saying. He says you don’t need a special degree to understand what the data says–and to at least some extent that is true. But it is definitely not Ginn making the claim that context doesn’t matter.

          He continues making largely non-related points in arguing against strawmen he is simultaneously set up.

          I suppose that field has borrowed some ideas from epidemiology. Now he’s trying to back-infer how epi works from what he knows about that area. It doesn’t work that way.

          This stuff isn’t an argument. Not about what Ginn said or in general, IMO.

          The rest of the stuff gets into it, and I get it. He makes good points but the thrust is ultimately that there’s a lot of confusion and misinformation and non-informational numbers coming out about COVID-19 and while he clearly proves Ginn is no epidemiologist (and may be wrong about his optimism) I don’t feel Bergstrom is entirely talking about what Ginn is talking about:

          This is just misleading. Being tested is not the same as thinking you are positive. Did your doctor ever order a rapid flu test or strep culture or a chest x-ray for pneumonia? When you did, did you think YOU were positive? Same deal with COVID19, esp in places like S. Korea.

          I don’t think it’s misleading, I don’t think Bergstrom was getting Ginn’s point about the psychology of all this.

          On his point 28, he goes all Microsoft paint with his 1% of cases will be severe over 2.3% died, which is a criticism of a bad call-out that may not have been the responsibility of the author–Ginn is saying that 1% of everybody tested in the US will have a severe case, not 1% of everybody testing positive will have a severe case. And I still feel like the argument is about the numbers, and to some extent, Bergstrom is purposely misunderstanding that.

          Not that he doesn’t have points and isn’t speaking from a perspective of topical expertise, but he isn’t really addressing the overall thrust of Ginn’s piece and is often arguing against strawmen and (my biggest complaints about experts, and of most non-experts in a given field)–he’s got a position that suggests he’s 100% right and Ginn is 100% wrong and that’s that. And is treating the idea that people feel the numbers don’t add up and our reaction may be a little crazy as fact-challenged morons. Which I don’t think is accurate.


  7. 7 states are now in “Stay at Home” orders; CA, NY, NJ, CT, IL, OH, and LA. Wonder who will be next? We’re fine here, just trying not to watch too much news but follow the cases close to us, they go up everyday but not too bad so far. Walter went to the grocery store this morning for the first time in a week and when he walked in they were handing out bouquets of flowers. That was a nice surprise when he came home and he was able to resupply most of what we need. I won’t let him go to more than one store or more than once a week right now. We’ve been playing Yahtzee but we’re switching to Rummy Tiles this afternoon. Yesterday I baked a lemon meringue pie to have something fun to do. Haven’t done that in about 15 years…………..LOL

    Hope you’re all doing well. I’m worried about the economic news with tomorrow being Monday but there’s not much I can do about it so trying not to get too stressed out about everything.


    • BTW, my county here in Riverside just increased number of cases overnight by 50%. We’re still not seeing huge numbers but most of those cases are in the western part of the county, where we are. I’m having some trouble discovering how many tests have been performed but did submit a question to the powers that be here to try to find that out.

      This afternoon, we used Zoom to talk/video chat with all 3 kids, their spouses and all 3 grandkids at the same time. 2 in SF, 3 in Golden, CO, 4 in Longmont, CO and Walter and I here in So Cal. It was like Christmas, birthdays, anniversaries and every other holiday all rolled into one and reminded me how funny and sweet my family is.


  8. NoVA, that’s impressive that Greg’s entire post is based on a misreading of the legislative language. I suspect it was intentional, either on his part or that of his “source”.

    Liked by 1 person

    • i saw that .. the exact language I spent yesterday working on.

      Liked by 1 person

      • nonprofit organization, or veterans organization employs not more than the greater of—
        ‘‘(I) 500 employees; or
        ‘‘(II) if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, or veterans organization operates.
        ‘‘(ii) EXCLUSION OF NONPROFITS RECEIVING MEDICAID EXPENDITURES.— Clause (i) shall not apply to a nonprofit entity eligible for payment for items or services furnished under a State plan under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) or under a waiver of such plan.


      • Reminds me of when the individual subsidy language of the PPACA was intentionally misread after the fact when the Red states didn’t set up their own exchanges.


  9. what a bunch of fucking clowns over there.


    • where


    • I’m starting to think Trump’s instincts may be right:

      However, they really need to get the testing situation fixed first. Maybe two more weeks?


      • at this point, the cure is becoming worse than the disease…

        Liked by 1 person

      • at some point, people will get sick of this and ignore it.


        • I think your’re going to be lucky to get even current levels of compliance for another week. After next week I think state and local officials should start phasing in a re-opening. Have strong advisories on number of people allowed in a sq ft type thing, quarantine older/ at risk Americans and maybe keep schools open. The week after, let her rip w/ continued quarantine for elderly an high risk.


        • London Update:

          All pubs, restaurants and cinemas are supposed to be closed. Most seem to be complying, although takeaway/delivery service continues. Most of the city is working from home. I am still going in every day…15 minute train ride (no tube) and then a 20 minute walk. Trains are not entirely empty, but not even close to usual number of people. In my office, out of my group (maybe 30 people total), only 3 of us were in the office today. 3 more are working at our DR site, and everyone else is WFH. Working from home might actually be bearable if not for the incredibly volatile markets. A little bit of shared gallows humor goes a long way, as opposed to simply sitting by yourself at home.

          Boris is supposed to talk in about 15 minutes. Rumors are that he is going to announce a more strict lockdown, with anyone going into and out of the city required to have a pass declaring them “essential” workers. I assume this does not mean just doctors and such, but will mean that businesses can declare certain employees “essential” to on-going business, and I will get one. But who knows. I do not look forward to working from home, especially as my wife is back in the states. Sitting in the house all alone, day after day, watching these markets might drive me crazy.

          We’ll see.


        • What would be better, working from an empty office or working from an empty home? I’m not sure. At least with an office there is some human interaction during the commute, right?


        • There has been a few people in the office outside my group that interestingly I had never met but have gotten to know over the last week or so, and just getting to the office gets me outside and walking, even if I don’t see anyone.

          And if I am WFH, there will be no escape. I will be on the computer at 6 or 6:30am, and there is no end to when I might get off of it. I literally just spent the last 90 minutes (it is now 10pm) having 3 different discussions on my computer with various people in NY and London about business. When I am going into the office, I am offline at least for the commuting time back and forth.

          Liked by 1 person

        • “After next week I think state and local officials should start phasing in a re-opening.”

          They are doing the opposite.

          Liked by 1 person

        • Are you saying that after next week state and local officials will not phase in a reopening but do an “all at once” opening? Or that they will further restrict individuals?


        • The later. That’s what the trend has been so far.


      • However, they really need to get the testing situation fixed first. Maybe two more weeks?

        This!!! I just found out this morning that we’ve only tested 25,000 people here in CA. We can’t possibly know what’s going on here yet. Maybe other parts of the country are doing much better than we are in number of cases and testing but we basically have no clue here how many people are infected. We’re getting two field hospitals in my county.

        Also, I don’t relish the thought of being under quarantine for the next 12 to 18 months because I’m going to be 70 soon. I’d actually rather just go out and get exposed and pray I survive so I can see my children and grand children again. I can’t do that though because I can’t overtax the medical system.

        Scott, I hope you survive the latest restrictions there and that your wife and girls are doing okay. I’m sure your days are really long.

        Liked by 1 person

  10. RIP Green New Deal.

    “BREAKING: Massachusetts governor bans the use of reusable shopping bags and mandates stores do not charge for plastic or paper bags – WCVB”


  11. Interesting Twitter thread on Italy.

    Here is the article it’s discussing.


    • Another one worth sharing. Thanks. George, if you get NEJM too, you probably read how ACE inhibitors increase ACE-2 expression and how ACE-2 is the favored path of the COVID-19 virus to the lungs. Again, if any of you are on ACE inhibitors, talk to your MD, and before you do I will send you articles from med journals.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: