Interest rates fell across the yield curve, as investors reacted to news of an uncertain economic outlook that comforts safe haven investments like MBS. In addition, traders were cognizant of upcoming economic data releases that could further affect the markets.
The 10-year note yield, which is often viewed as a proxy for mortgage rates, fell four basis points to 0.814% during the session. The 30-year MBS coupon also saw a dip of five basis points to 2.418%. Mortgage rates tend to move in the same direction as MBS prices, so this decline was beneficial to current and prospective borrowers.
Throughout the day, domestic equity markets were relatively quiet. The S&P 500 was down 0.34%, while the Dow Jones Industrial Average and Nasdaq rose 0.45% and 1.19% respectively.
As of now, COVID-19 cases across the US continue to surge. This trend is not only concerning for public health but could also lead to a greater economic slowdown. To that end, investors continue to seek safety in MBS amid this uncertain backdrop.
On Wednesday, investors will be watching out for key economic releases that could move the markets. The first release will be the monthly Gross Domestic Product (GDP) report, which tracks the growth rate of the economy. Other important metrics include durable goods orders and personal income and outlays. These reports could help shed more light on the status of the economy and how it is affecting the housing sector.
In summary, MBS performed positively on October 26th, 2020. Yields dropped across the board amidst a backdrop of economic uncertainty due to the ongoing pandemic. Equity markets were relatively stable, with the S&P 500 down and the Dow Jones Industrial Average and Nasdaq up. Furthermore, investors remain focused on key economic releases set to occur on Wednesday, with the monthly GDP report being of particular importance.
Mortgage-backed securities are an attractive investment for many investors for a number of reasons. During times of crises like the COVID-19 pandemic, they are seen as a safe haven, as they mean investors do not need to take risks in the stock markets. At the same time, they can also provide good returns if held for the long term. For current and prospective homeowners, dropping interest rates due to increased MBS demand can be beneficial, as it means lower mortgage rates and thus lower monthly payments. Ultimately, MBS can be an invaluable tool for a wide range of different investors and borrowers.
This article was contributed on Dec 30, 2023
