The Pipeline

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Welcome to the Pipeline, Andrew Davidson & Co., Inc.‘s newsletter, a “pipeline” of relevant and useful information, focused on recent trends, changes, and advances in the mortgage investor’s market.

Issue No. 185 | Feb 2024

LEAPING INTO 2024
Eknath Belbase

On this leap day edition of the Pipeline, we present four articles.

Our first article outlines recent macro developments that impact potential interest rate scenarios over the next year. I look at the ongoing convergence between market views as captured by Fed Fund futures/the yield curve and Fed views from the last dot plot, risks from the CRE space and finish with implications for the agency coupon stack.

MACRO-CONSIDERATIONS & TWO-SIDED MORTGAGE RISK
Eknath Belbase

In this article, we look at recent macro developments, the discrepancy between the Fed’s view and the rate path views embedded in Fed fund futures and discuss some potential scenarios that could evolve over the course of the year. We finish by looking at the agency coupon stack and the potential implications of these scenarios.

SHIFTING GEARS BACK TO FUNDAMENTALS
Connor Campbell

Much to the dismay of securities markets, which have struggled to price risk in an uncertain environment, the auto market has been on a joy ride for the past few years. When reflecting on just how strange the market has been, several things come to mind: appreciation of new and used vehicles; a couple of ABS deals are positioned to incur losses on a few lower tranches; manufacturers’ wide production of electric vehicles—and a sports car launched into outer space.

2024 CCAR SCENARIOS: MANDATORY AND EXPLORATORY STRESS-TESTING THROUGH AD&CO’S ANALYTICS
Alex Levin, Daniel Swanson

On February 15, the Federal Reserve Board (Fed) released two scenarios—Base and Severely Adverse—for the 2024 Comprehensive Capital Analysis and Review (CCAR). In addition, the Fed released two exploratory scenarios (A and B) that combine economic stresses with higher, rather than lower, interest rates, thereby increasing the cost of funding. These scenarios describe three-year trajectories based on key economic indicators.

FINANCIAL EDUCATION MUST KEEP UP WITH THE TIMES
Andrew Davidson

As financial professionals, we spend much of our time evaluating financial products such as credit cards, mortgages, insurance, and investments to determine how to manage risk and grow net present value for our employers. We spend less time, perhaps, thinking about why these products exist at all and if they are providing benefit to our customers. Much of our financial and regulatory system is built on the idea that it is the duty of the customer to determine which products are right for them and what price to pay.

© 2024 Andrew Davidson & Co., Inc. All rights reserved. You must receive permission from marketing@ad-co.com prior to copying, displaying, distributing, publishing, reproducing, or retransmitting any of the content contained in The Pipeline.
This publication is believed to be reliable, but its accuracy, completeness, timeliness, and suitability for any purpose are not guaranteed. All opinions are subject to change without notice. Nothing in this publication constitutes (1) investment, legal, accounting, tax, or other professional advice or (2) any recommendation or solicitation to purchase, hold, sell, or otherwise deal in any investment. This publication has been prepared for general informational purposes, without consideration of the circumstances or objectives of any particular investor. Any reliance on the contents of this publication is at the reader’s sole risk. All investment is subject to numerous risks, known and unknown. Past performance is no guarantee of future results. For investment advice, seek a qualified investment professional. Note: An affiliate of Andrew Davidson & Co., Inc. engages in trading activities in securities that may be the same or similar to those discussed in this publication.

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172
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Daniel Swanson
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Dan Szakallas
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Eknath Belbase
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Eknath Belbase
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Andrew Davidson
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167
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Chris Widman
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Eknath Belbase
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Sanjeeban Chatterjee
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Eknath Belbase
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165
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Richard Cooperstein
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164
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Eknath Belbase
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164
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Eknath Belbase
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164
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Daniel Swanson
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02-2019
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164
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John Gao
Alex Levin
Daniel Swanson
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12-2018
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163
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Eknath Belbase
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163
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Alex Levin
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163
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Dan Szakallas
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12-2018
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163
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Sanjeeban Chatterjee
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162
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Eknath Belbase
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Alex Levin
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162
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Eknath Belbase
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161
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Eknath Belbase
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161
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Daniel Swanson
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161
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Alex Levin
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08-2018
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160
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Eknath Belbase
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Dan Szakallas
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160
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Alex Levin
Mickey Storms
John Gao
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159
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Eknath Belbase
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159
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Andrew Wilcox
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158
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Eknath Belbase
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158
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Richard Cooperstein
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Jin Chen
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Eric Limjoco
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157
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Eknath Belbase
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Eknath Belbase
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03-2018
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157
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Alex Levin
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