The eternal disclaimer: we should never flat-out expect a particular correlation between stocks and bonds, with limited exceptions. Yesterday’s Fed announcement was an exception, because we often see stocks and bonds improve together when the market perceives a friendlier Fed.  That correlation (stock prices moving higher and bond yields moving lower) is a break from the recent norm where heavy stock losses have spilled over to help bonds. We may be seeing a gentle return of that norm this morning.  Data failed to offer any inspiration, but stocks are surging at the open, with the reversal of overnight losses aligning with a reversal in the overnight bond market rally.

If there’s a happy takeaway above, it’s that the bond bounce hasn’t been remotely commensurate with the stock bounce.  Perhaps there is some small attention being paid to Jobless Claims creeping up to their highest non-seasonally adjusted level of the past 5 non-lockdown-impacted years.

“My wife just left me. She says life revolves around baseball and she’s sick of it. I’m quite upset. We were together for 7 seasons.” Say hello to the spring equinox, that astronomical spring in the Northern Hemisphere that occurs when the sun crosses directly over the equator, resulting in nearly equal day and night lengths, and halfway between the day with the least amount of daylight and the day with the most. Rain or shine, the seasons proceed. Rain or shine, data breaches occur (see below). Rain or shine, lenders and vendors are interested in being acquired, acquiring, or merging with culturally similar organizations. This month’s STRATMOR piece is titled, “Mergers and Acquisitions Aren’t Going Away, and In Fact…” And rain or shine, the U.S. Federal Reserve is keeping an independent eye on the economy and making sure it is stable. Yesterday the “Fed” did… nothing. (More below in capital markets.) Vice Capital’s Chris Bennet will be on The Big Picture today at 3PM ET to discuss the Federal Reserve, the link between current and future yields, and why rates are where they are. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. Whether it’s using cash to purchase a home, debt consolidation, or a straight cash-out refinance, CoreLogic’s Precision Marketing’s data-driven insights pinpoint your best opportunities to retain and recapture your clients. Today’s has an interview with Simple Lending Financial’s Janine Cascio on her journey from breaking into the mortgage industry to founding her own company, reflecting on the challenges and triumphs along the way, and offering valuable advice for women looking to advance their careers and break barriers in the industry.)

After the Federal Reserve moved to slow the pace of quantitative tightening, the Fed chair floated the idea of continuing to allow mortgage-backed securities to roll off its books even after the central bank has met its monetary policy objectives in reducing its balance sheet.

Headlines over real estate sales policies, as well as economic upheaval, are having a negative impact on how insiders are seeing the market today.

Rising insurance costs are leading providers and condo associations to consider changes to policies that would make some loans ineligible for GSE sale.

A former COO at Marlin Mortgage claims the servicer transferred an MSR portfolio to a new subservicer not to benefit the investor, but for the gain of the company’s CEO.

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.