The mortgage industry finds itself at the intersection of policy uncertainty, data disruption, and evolving liquidity dynamics. In this week’s episode of Optimal Insights, Jeff McCarty, James Cahill, and Kevin Foley unpack the latest market signals, while special guest Justin Monahan of Tradeweb offers a look into the infrastructure behind mortgage-backed securities (MBS) pricing and execution.
Here’s what you need to know this week.
Market Pulse: Flat Rates, Fed Cuts & Data Gaps
OBMMI Conventional 30-Year: Holding steady at 6.244%
10-Year Treasury: Hovering around 4.15%
Key Developments:
Government Shutdown: The BLS jobs report was delayed, prompting reliance on alternative indicators like the Dow’s payroll estimate (51,000) and the Chicago Fed’s new CHURN model, which noted unemployment at 4.34%.
Fed Rate Outlook: CME futures suggest a near-certain rate cut within 25 days, with an 83% probability of a second cut in December.
Inflation & Employment: Fed commentary indicates growing concern over labor market deterioration, with inflation seen as stable but elevated.
Demystifying MBS Pricing and Execution
Guest: Justin Monahan, Agency MBS Product Manager, Tradeweb
This week’s special guest section explores the mechanics behind MBS pricing – an essential yet often opaque component of the mortgage market. Tradeweb’s Justin Monahan offers a detailed breakdown of how MBS prices are formed, how trades are executed, and what drives liquidity in the TBA market.
Key Takeaways:
Price Discovery: MBS pricing is driven by a composite of dealer-sourced data, with 95% of trades occurring within one 32nd of the published mid-price.
Execution Mechanics: Tools like RFQ platforms and trade compression protocols streamline execution and reduce operational friction.
Market Dynamics: MBS prices are influenced by Treasury movements, supply-demand imbalances, and institutional buyer behavior – particularly from banks and ETFs.
Policy Implications: The discussion also touched on the potential impact of the Fed accelerating MBS sales, which could widen spreads and elevate mortgage rates.
This segment offers a rare look into the infrastructure that underpins borrower pricing and hedging strategies – critical knowledge for anyone navigating today’s mortgage landscape.
Actionable Advice for Mortgage Professionals
Track Alternative Data: With traditional reports delayed, tools like the CHURN model offer real-time labor insights.
Prepare for Rate Cuts: Adjust hedging and pricing strategies in anticipation of Fed action.
Understand MBS Pricing: Familiarize yourself with how TBA prices are derived and how they impact loan pricing.
Use Liquidity Tools: Platforms like Tradeweb’s Round Robin can optimize trade execution and reduce operational friction.
This episode offers a layered view of the mortgage market – combining macroeconomic analysis with operational depth. The discussion with Justin Monahan reveals the intricacies of MBS trading, while the broader market update underscores the importance of agility in a data-fragmented environment.
Listen to the latest episode of Optimal Insights for deeper analysis and expert commentary. Available on all major podcast platforms: https://optimal-insights.captivate.fm/listen
The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Optimal Blue, LLC.