Interest rates result from supply and demand, and plenty of companies are taking advantage of low interest rates by issuing securities backed by their assets. Last week ABS issuance hit over $10 billion for a second week. Residential MBS pending includes $872 million from United Wholesale Mortgage (UWM 2021-INV3) of Agency eligible/investor, $323 million from Toorak Capital Partners (TRK 2021-INV2) of Non-prime/investor, $407 million from Redwood Trust (SEMT 2021-7) of Prime jumbo, and $733 million from Tricon American Homes (TAH 2021-SFR1) of SFR.
Bond markets have been in a whipsaw recently amid concerns over inflation and monetary tightening. Inflation risks from supply-chain snarls and raw material cost increases are boosting expectations for rate hikes and hurting the economic outlook. Expectations are now for around two to three rate hikes next year, which is a marked increase in expectations from just a month ago. Supporting that narrative was Friday’s Personal Consumption Expenditures index rising by 4.4 percent year-over-year, higher than the Fed’s preferred level. Even though the Fed still considers the current spate of inflation to be temporary, a larger than expected decrease in income coupled with a spending increase that was more than expected in Friday’s report has negative implications for growth should it continue.
This first week of November is a busy one for the U.S. markets with the FOMC expected to announce the tapering of asset purchases following the conclusion of the two-day FOMC meeting on Wednesday. Markets also receive the October employment report this Friday, and a spate of scheduled economic news ahead of that.
Today’s calendar sees the latest manufacturing PMIs from Markit and ISM out later this morning along with September construction spending. With regard to MBS and besides Fed purchases, the agencies will release prepayments after the close on Thursday with Class A net out on Friday. Speaking of, the NY Desk will purchase $5.5 billion of MBS per day on average, with today’s schedule targeting 30-year 2 percent and 2.5 percent for up to $5.95 billion. We begin November with Agency MBS prices worse .125 from Friday and the 10-year yielding 1.58 after closing last week at 1.56 percent.
Market Commentary by Rob Chrisman
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