Bonds Lose Ground Despite Larger Fed Rate Cut

The Fed was either going to cut 0.50% or 0.25% today.  It opted for the larger cut but the bond market LOST ground.  For those who hadn’t tuned in over the past few weeks to learn why such things can happen, there were two potential reasons: the dot plot and Powell’s press conference.  The dot plot was inoffensive and actually left bonds in slightly better shape.  It was Powell’s press conference that caused the reversal this time.  He didn’t show visible concern on the labor market.  He was clear to specify that 50bp isn’t the pace of cuts until further notice.  He stayed well clear of declaring victory on inflation.  And he reiterated that the “neutral rate” is probably “significantly higher” than before the pandemic.  Combine all that with a bond market that had been in a relatively aggressive position heading into Fed Day and the moderately weaker closing levels are about as boring and logical a result as anyone could imagine.

Econ Data / Events

Housing Starts

1.356m vs 1.31m f’cast, 1.237m prev

Building Permits

1.475m vs 1.41m f’cast, 1.406m prev

Market Movement Recap

08:34 AM Modestly weaker overnight with losses starting in Europe.  MBS down 3 ticks (.09) and 10yr up 2.5bps at 3.681

10:23 AM Some additional losses  with MBS now down 5 ticks (.16) and 10yr up 3.3bps at 3.689

12:06 PM Off the weakest levels.  MBS down 5 ticks (.16) and 10yr up 3bps at 3.685

02:33 PM Plenty of volatility after Fed’s 50bp cut and aggressive dot plot.  10yr currently down 1.5bps at 3.64 and MBS up 1 tick (0.03) in 5.0 coupons.

03:12 PM Losing some ground now with MBS back to pre-Fed levels and down a quarter point from highs.  10yr up to highs of day at 3.70

04:07 PM weakest levels of the day.  MBS down 7 ticks (.22) and 10yr up 6bps at 3.713