July 8, 2021 Headlines

The recent Treasury market rally garnered more momentum overnight on speculation that China might announce a rate cut in the coming months due to weakening economic data. The 10-year yield touched 1.25% in early trading hours, the lowest since February, and equity futures are down nearly 1.5% ahead of the open. There have been multiple articles in the last 24 hours suggesting that investors are reversing on the reflation/inflation trade for various reasons, including the spread of the Delta variant. However, trader commentary suggests that the rally might be more technical than fundamental, driven by reduced Treasury supply and a relatively large amount of short positions prior to the rally (i.e., short squeeze).

In the MBS market, June prepayment data released late yesterday showed less than expected prepay activity, with Fannie Mae 30-year pool speeds rising 5% m/m to 24.6 CPR in aggregate. The 5% increase is considered a positive for investors in light of the 10% increase in business days for June relative to the prior month, and in a reversal of the last two prepay reports, prepayments from higher coupon pools accelerated at a slower pace than lower, production coupons.

Jason Haley
Chief Investment Officer

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07/06/21ISM Services Index63.560.164
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07/08/21Continuing Claims3350k3339k3469k3484k
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07/08/21Consumer Credit$18.000b$18.612b
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07/09/21Wholesale Inventories MoM1.10%1.10%

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