This is Matt Graham with the MBS Live market update. Last week was relatively calm and sideways given the presence of a Fed announcement with a dot plot, something that typically delivers a solid amount of volatility. In this case, it delivered almost no volatility, despite the dots doing some interesting things. As a reminder, the dots or the dot plot refers to a chart in the Fed’s summary of economic projections, something it releases on. Four out of the eight meetings a year that details each Fed member’s view of where the appropriate level of the Fed funds rate would be at the end of the next few years. It’s come to be a big market mover on the days that it comes out, but again, last week’s announcement was not one of them. Some of the Fed members moved to expect a higher fed funds rate by the end of the year. Others moved lower. The median Fed member was just slightly higher across the board until you get to the longer run rate expectations. Several years in the future, the movement upward was not super significant. It was a close call as to whether the median would change depending on one or two fed members changing their forecast and then. After the Fed announcement, you had several Fed members make additional comments that were relatively dovish, saying the Fed, saying that they could see the Fed cutting as early as July, and that a case could be made for that. Most recent, just this morning, Michelle Bowman moved markets most significantly. I. And that caused a drop in Fed fund’s futures rate expectations from roughly 3.88 to 3.80. And that’s a pretty decent drop for an individual data point. To put that in context, when CPI came out on the 11th Fed drop was only about. Three quarters as big apart from the Fed last week didn’t offer anything super significant in terms of scheduled events and in terms of unscheduled events, everybody of course is interested in the conflict in the Middle East and the US joining the hostilities or taking part in bombing Iranian nuclear facilities. And that’s the sort of thing that when one hears it. On a Sunday evening, they would expect to see the bond market rally if they have been paying attention over the years, because that generally tends to promote a risk off trade, safe haven buying in the bond market. But if those same people had been paying attention closely in 2022 when the Ukraine War began. We have a little bit of nuance to that point of view perhaps where we saw inflation expectations offset the typical risk off Safe haven bond buying motivation. In other words, traditionally it’s pretty common to view war as helping rates move lower but. Recently we’ve seen examples where the opposite happens largely due to the inflation channel. This time around there really was no major reaction in the bond market initially. In the overnight session. Stocks dropped at first, but bond yields actually rose possibly due to those inflation implications and indeed oil prices had spiked a bit at the time. But on a tangent, it’s important to note that bond yields and oil prices, while they do correlate broadly don’t always move in lockstep. Day to day. And there are several notable examples of that. Most recently with the start of hostilities on June 12th there was a big oil price spike, but bond yields actually moved lower when that happened. So it’s definitely not the sort of thing where we can simply say oil prices moved higher overnight and bond yields ticked up just a little bit. And those two things are correlated, but it is a possibility more specifically. This morning we had those Bowman comments and those are easily able to be tied to a rally in the bond market. There was also news out of Iran that there was no radioactive contamination as a result of the attack. It seemed to take a little bit of solace in that fact. Overall, if you find yourself bewildered or. Confused as to why there isn’t a bigger market reaction in one direction or the other this morning. I would simply consider that America’s involvement in this conflict is too new and as yet too uncertain to draw any sweeping conclusions. If that changes, for better or worse, the market reaction could change, but the only time will tell. As far as the rest of this week’s economic data, we already had s and P Pmmi this morning coming out roughly at nine with expectations, but showing an uptick in prices. Speaking of prices, home price reports come out tomorrow morning, case Schiller and FHFA, as well as consumer confidence and the first of two days of Fed share. Powell semi-annual congressional testimony with the OLAS mortgage apps on Wednesday and new home sales expected to soften a bit. To 700 K annual pace. Then we get a GDP update for Q1 on Thursday, as well as the typical weekly jobless claims. We’ll also get pending home sales at 10:00 AM and the end of the week’s treasury auction cycle with seven year notes. Friday brings PCE inflation, something that had been fairly important on several occasions over the past few years, but has recently been less of a market mover potentially due to its ability to be better. Forecast by the other data that feeds into it and that comes out earlier in any given month. Nonetheless, if there’s an inflation surprise, for better or worse, it is still definitely a potential source of volatility. That’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.