On Tuesday, mortgages underperformed for the third straight day as more robust origination flows in the afternoon pushed the basis wider. At the close, UMBS 2.0s ended up ~1.5/32 wider (underperform) to treasuries. Origination flows had another big day yesterday, with volume totaling almost $8.5B for the second consecutive day. This week’s volume has lifted the 5-day average to almost $7.7B. The Fed purchased ~$4.6B in 30yr and 15yr conventional MBS yesterday and is expected to purchase up to ~$5.2B in 30yr government and conventional MBS today. At 5:00PM, 30yr UMBS 2.0s in August were -4.5/32 (102-3) and 15yr UMBS 1.5s were -4.5/32 (101-29+).

The MBA’s mortgage applications index from last week was released this morning. The MBA report showed a slowdown in mortgage applications, falling 1.7% after a jump of 7% in the previous week. Both purchases and refis fell by the same 1.7% figure this week.

This morning, treasuries are opening mostly higher. Currently, the 2yr is +.25/32 (0.170) and the 10yr is +5/32 (1.157).

From Elliot Eisenberg, the Bowtie Economist: Simply Services – Inflation, as calculated by the Fed’s favorite measure Core-PCE, was 3.54% Y-o-Y in June, up just marginally from 3.44% in May, suggesting that Peak Inflation is probably here. A key reason inflation isn’t worse, unlike other recessions there’s little pent-up demand for goods but lots for services. However, you can’t eat all the restaurant meals you missed during lockdown. Thus, the current pent-up demand for services is immediate but limited.