The lender says its technology will supercharge scale, preventing a potential hiring and firing spree which doomed it after the recent refinance boom.

Heading into today, we knew the afternoon’s Fed announcement was biggest potential flashpoint for interest rate movement, and that the movement probably wouldn’t be extreme. The unknown, as always, was the direction of said movement. Thankfully, it was lower. This wasn’t destined to be the case this morning.  Out of the gate, the average mortgage lender was offering slightly higher rates compared to yesterday’s latest levels. After markets reacted to the Fed, lenders revised their rates to the lowest levels in just over a week (also fairly close to the low end of the range going back to mid October). [thirtyyearmortgagerates] What did the Fed say/do to bring rates down?  First off, the bond market movement wasn’t big, even by the standards of a regular non-Fed day.  That said, there was definitely a reaction to the Fed. Some of it had to do with the Fed’s rate forecasts staying fairly grounded despite concerns that recent inflation readings could push those forecasts higher.  In addition, the Fed made some changes to the way it handles the payments it receives on bonds it already owns. The changes will allow the Fed to reinvest more of those payments back into buying new bonds, and bond buying is good for rates, all other things being equal.  

Post-Fed Rally is “Nice” But Not Quite Exciting

In a small vacuum, today’s Fed announcement had a noticeably positive impact on bonds despite yielding “just another day” vibes in the bigger picture. Traders reacted to some combination of a reasonably steady dot plot and the announcement of slower balance sheet shrinkage (which, in turn, implies more bond buying in the short term at the expense of a longer wait before the Fed fully reinvests its balance sheet proceeds). If you don’t understand that last part, don’t worry. It’s arcane.  It is basically a technical adjustment in the pace, but not in the destination. The bottom line is that the adjustment was mildly friendly for bonds today, even if it was a technical adjustment and not an indication of easier monetary policy. 

Market Movement Recap

10:34 AM Roughly unchanged overnight and slightly weaker in the past hour. MBS down an eighth and 10yr up 1.6bps at 4.302

01:00 PM Sideways since the last update.  MBS down 3 ticks on the day and 10yr up 2.4bps at 4.311

02:25 PM Stronger after Fed announcement (greatly slowing the pace of Treasury tightening).  MBS up 2 ticks (.06) and 10yr down 1.3bps at 4.274

03:41 PM Holding gains after Powell press conference.  MBS up 5 ticks (.16) and 10yr down 3.4bps at 4.253

New residential construction increased 11.2% to an annualized rate of 1.5 million in February, according to government data released Tuesday.

Federal Housing Finance Agency Director Bill Pulte is the new chair for both and he has removed several members while adding a few new names at each.

Multifamily debt held by all capital sources continues to grow at a faster pace than the overall commercial market, the Mortgage Bankers Association said.

Included among the social media posts made by the new FHFA director was a request for public comment on how Fannie Mae and Freddie Mac might be improved.

The private market is increasingly testing credit metrics aimed at growing originations without adding risk as a larger effort to this end has slowed.

Low Volatility Session Ahead of Fed Day

4 out of the year’s 8 Fed announcements include an updated dot plot (i.e. a chart of each Fed member’s projection for the Fed Funds Rate at the end of the next few years). Dots have come to be viewed as one of the biggest potential flashpoints for rate volatility, but their actual track record is hit and miss.  Over the past few years, they’ve done more to simply add context or push-back to the tone conveyed in the statement or press conference, but have stopped short of re-writing the momentum narrative. This week’s example should fit right in. We know the Fed won’t hike and we know the dots won’t be making the sort of huge leaps seen on several recent occasions. As for today, it was pleasant, but boring, with a slightly weaker start giving way to mild rally into the close–just another day inside the multi-week consolidation.  

Econ Data / Events

Building Permits

1.456M vs 1.450M f’cast

Housing Starts

1.501M vs 1.380M f’cast

Industrial Production

0.7 vs 0.2 f’cast

Market Movement Recap

10:20 AM Sideways to slightly weaker overnight but bouncing back now.  MBS and 10yr both exactly unchanged. 

01:34 PM rallying all morning with additional gains after 20yr auction.  MBS up 3 ticks (.09).  10yr down 2bps at 4.281

03:15 PM Off the best levels now, but still stronger on the day.  MBS up 2 ticks (.06) and 10yr down 2.6bps at 4.276 (about 1bp up from lows).

Recall 2 weeks ago that news of the incoming German Chancellor’s ambitions to massively increase debt/spending led to the end of the bond rally in the US that took 10yr yields from 4.55 to 4.15%. The resulting bounce in US Treasuries was limited to roughly 15bps.  Meanwhile, Germany’s equivalent 10yr yields spiked 3 times as much, with the March 5th being the worst day for German bonds since 1989 (fall of Berlin Wall). At the time, it wasn’t a given that the debt ceiling increase could pass muster in Germany’s constitutional court and parliament, but as of this morning, it’s a done deal. Thankfully, it seems markets already had this fully priced in.

Meanwhile, the US bond market’s consolidation continues in stunningly perfect fashion ahead of tomorrow’s Fed dot plot.

If you ask a technical analyst, the chart above is a classic consolidation (or triangle, pennant), and it carries one of several connotations. Some say they’re predictive, but the only reliable prediction is that such consolidations can’t last forever (after all, the white lines are about to converge). The Fed’s dot plot probably has the power to cause a breakout in one direction or the other, but incoming economic data would have to agree with the move if it’s to be sustained.