Greetings Mortgage People,
It’s been a few weeks, but they say that absence makes the heart grow fonder. I’m hoping you missed me while I was gone. The rumors of my death have been greatly exaggerated. I was only ‘mostly dead’. And ‘mostly dead’ is the same as ‘slightly alive’. So here we go…
In a week with little economic news to bet on and seasonal sleepiness in equity and fixed income markets, stocks and bonds have largely stumbled along without much traction in either direction this week.
5 year benchmark bond yields are just a couple basis points higher at 1.56% compared to 1.54% a week ago but are still below the 6-month high of 1.69% set back on July 31st. The 6-month low was set back on June 6th at 0.97%. It’s worth noting that as of yesterday, we are now referencing the 1.00% Sept 2022 bond as the benchmark. The old benchmark 0.50% March 2022’s are out. The spread between the two maturity dates is about 5-6 basis points, SO, make sure you know what bond you’re talking about before arguing with someone about 5 year yields or swap spreads next week. The new Sept 2022’s were first auctioned on May 25th at 1.04% (hence the 1.00% coupon) and then re-opened on July 5th at 1.48% and Wednesday this week at 1.57%.
10 year benchmark bond yields are also just slightly higher at 1.89% compared to 1.87% a week ago but are still well below the 6-month high of 2.05% set back on July 31st. The 6-month low was set on June 6th at 1.39%. To be clear, the 10 year benchmark remains the 1.00% June 2027.
The spread between the 5 and 10 year GoCs is currently at a 6-month narrow of 33 basis points. The 6-month wide was set back on May 10th at 57 basis points.
Oil is back around $48 which is the 6-month average price. The high of $54 was set 6-months ago on Feb 27th and the low of $42 on June 21st. Recent price declines have been trimmed as traders brace for the impact of Hurricane Harvey on the US refining hub in the Gulf of Mexico. At the time of writing, Treasury Guy does not anticipate any immediate correlation between the hurricane and mortgage rates. The cost of bullets and bottled water, however, are surging in Texas.
Of note today will be the scheduled appearances of Fed Chair Janet Yellen and the Head of the European Central Bank Mario Draghi at a conference of central bankers in Jackson Hole Wyoming. Neither is expected to offer a fresh policy message, but their comments will be parsed for clues on the timing of reductions in stimulus. Following the formal proceedings the symposium is scheduled to end with the world’s most boring after party.
In securitization news, Canada Housing Trust issued $2.25 billion 10-year and $2.0 billion 5 year FRN bonds last week for settlement on Wednesday this week. The 10-year deal cleared at 44.5 basis points over the GoC benchmark compared to 47.5 basis points when it was first launched in February and at 48.5 basis points in May.
Finally, a new study has found that most shark fins and manta ray gills sold around the world come from endangered species. Duh. That’s too bad though. Treasury Guy loves a good bowl of manta gill soup. According to ancient texts in addition to various medicinal qualities it is supposed to make your, uh, feet bigger.
Of course, the one thing better than manta gill soup is a nice MLT – a mutton, lettuce and tomato sandwich, where the mutton is nice and lean and the tomato is ripe. They’re so perky, I love that.
Anyway…have a great weekend and have fun storming the castle or whatever you have planned,
Jason Ellis, Managing Director, Capital Markets