The board has reduced some aspects of Rithm CEO Michael Nierenberg’s pay, but also significantly raised the performance-based component.

Surprisingly Calm Reaction to Surprisingly Dovish Fed

With so much apparently at stake heading into today’s Fed events, the reality ended up being somewhat underwhelming.  At least it was underwhelming in a good way for the bond market and rates.  The key revelation was a Fed dot plot (individual projections for the Fed Funds Rate) that showed the exact same median rate at the end of 2024 as seen in the last dot plot (3 rate cuts still penciled in this year).  Bonds cheered the news at first, but then got defensive ahead of Powell’s press conference.  Powell navigated questions without prompting any more panic–essentially convincing investors that the Fed was approaching incoming data with with a certain level of optimism regarding inflation returning to the late 2023 trend (as opposed to the early 2024 trend of higher readings). Bonds ended up basically threading the needle with modest gains by the end of the day.

Market Movement Recap

09:38 AM Initially stronger overnight on EU inflation data, but steadily rising since then.  10yr unchanged at 4.293.  MBS down 1 tick (.03)

01:25 PM Slightly stronger ahead of Fed.  MBS up an eighth.  10yr down 1.8bps at 4.275

02:32 PM 2 way reaction after Fed announcement.  Now slightly weaker heading into the press conference.  10yr up 1.1bps at 4.304.  MBS still up an eighth of a point. 

03:25 PM Bonds settling down in slightly stronger territory with MBS up 7 ticks (.23) and 10yr yields down 1.6bps at 4.277. 

The rate market was intently focused on today’s announcement from the Federal Reserve.  While many news headlines emphasize the Fed “holding rates steady,” but that’s not what the bond market was focused on.  Because mortgage rates are determined by the bond market, that meant they were free to move even though the Fed stood still. Markets were most interested in the Fed’s projections for future rate cuts.  In not so many words, those projections retained the Fed’s previous expectation of 3 rate cuts by the end of this year, albeit by a smaller margin than the last round of projections in December. This was a bit more hopeful than markets expected. As such, bonds improved and mortgage rates fell.   The catch is that the improvement wasn’t very big, so the average mortgage lender is still in noticeably higher territory compared to the beginning of last week.

Intercontinental Exchange is leveraging the recent acquisition of Black Knight in new business partnerships announced at its annual mortgage conference.

A trio of Republican Congressmen stated they will investigate how the program got fast-tracked by the Biden Administration.

Industry veterans are wary of prospective borrowers who can’t pay for agents, and of compensation guidelines clashing with government mortgage lending programs.

The change may open the door to an initial public offering for Figure Technologies’ origination division in the future.

Fannie Mae’s latest forecast now predicts rates to be half a percentage point higher, and volume to be $1.5 trillion lower than previously expected in 2024.

Ceiling Survives But Wednesday is The Test

Any trading day without a big ticket economic report or Fed announcement faces an uphill battle on the road to relevance. Today was no exception with only Housing Starts on the data calendar and a 20yr bond auction rounding out the scheduled events.  The auction was relatively strong and helped facilitate the day’s modest gains.  That said, we were already green before the auction and the market seemed to simply be avoiding a break of the 4.32% ceiling.  It’s held up quite well now and we can assume Wednesday’s Fed events will either precipitate a clear breakout or bounce.

Econ Data / Events

Housing Starts

1.521m vs 1.425m f’cast, 1.374m prev

Building Permits

1.518m vs 1.495m f’cast, 1.489m prev

Market Movement Recap

09:43 AM Sideways to slightly stronger overnight.  10yr down 1.6bps at 4.312.  MBS up an eighth.

12:15 PM 10yr down 2bps at 4.308.  MBS still up an eighth.  Sideways and somewhat choppy.

01:17 PM Some friendly volatility after 20yr bond auction.  10yr briefly down to 4.289, but now back to 4.308 (down 2bps on the day).  MBS up 5 ticks (.16).

02:13 PM Best levels of the day now with MBS up a quarter point and 10yr down 3.2bps at 4.296

The head of the Consumer Financial Protection Bureau summarized his findings from a yearlong probe into the Appraisal Foundation. He says the “lawmaking body” is not accountable to the public or market forces.