Good morning, and happy FOMC day! If you haven’t read Tuck’s post of inscrutables from yesterday evening, please do so…and do not expect me to offer any clarity on the dynamics that have taken hold of the marketplace. Despite the continued fragility of the banking sector, the Fed is broadly expected to increase the fed funds rate today by another 25 basis points—hoping the action will further stifle inflation without exacerbating market instability. That needle is a narrow one to thread. Today’s meeting will also provide an updated “dot plot”, which is simply each member’s expectations for the future trajectory of rates. Predictive markets have pulled forward expectations for the first rate cut, and it will be informative to see if that is the bias of the Fed as well. Yesterday’s trading activity represented more moderation of the “risk off” trade as equities rallied sharply while Treasury yields moved further away from recent low prints. The 10yr yield added nearly 12 basis points to close around 3.60%. Mortgage-backed securities performed remarkably well in a bit of a role reversal with current coupons only losing 25 basis points or so in price. The average 30yr mortgage rate rose another 8 basis points to 6.75%.
Market moving data is limited this morning, which likely means position squaring will be the order of the day until this afternoon’s rate decision. The weekly MBA survey out earlier this morning revealed an uptick in applications for both purchase and refi transactions for the week just passed with the latter reaching the highest level in 6 weeks. Activity was boosted by a 23 basis point decline in the average 30yr rate. Activity overnight saw price action contained within the yellow lines and Treasuries are opening this morning just slightly weaker to 5:00 closing marks. Good luck today!
H
