It happens, but it’s rare. A Fed “dot plot” day has come and gone with mortgage rates almost perfectly unchanged from the previous day. This speaks to the level of indecision not only in the market, but also among Fed members. First off, what’s a “dot plot day?”  The dot plot (or simply, “the dots”) refers to a chart/table in the Fed’s economic projections that shows where each Fed member sees the Fed Funds Rate at the end of the next few years.  These projections only come out on 4 of the 8 Fed days per year and they’ve grown to be a leading source of volatility for financial markets on those days. Since it was already a foregone conclusion that the Fed would not be cutting rates today, the market was forced to take its Fed-related cues from the dots and from Fed Chair Powell’s press conference. The latter was just slightly negative for rates (i.e. it implied some upward pressure), but the dots did no harm.  After the dust settled, the underlying bond market was flat to slightly stronger on the day due to improvement that was in place several hours before the Fed announcement.  Markets are closed tomorrow for the Juneteenth holiday, but will reopen on Friday.

Fed Threads Needle of Apathy

Today marked one of only 4 days of the year with an updated Fed dot plot. When it came out, there was a fairly pitiful volume response relative to other dot plot days and an even more underwhelming level of volatility in the bond market. It wasn’t until almost 45 minutes later that bonds showed actual signs of life in response to Fed Chair Powell saying flat-out that they’ll be able to make a better decision if they wait a couple of months.  But even after that modest bounce in bond yields, we were just barely getting back to unchanged levels on the day.  Bottom line, the Fed easily threaded the needle of bond market apathy–not too surprising given that it’s a wide eye at the moment, but definitely not a given on dot plot day.

Econ Data / Events

Jobless Claims

245k vs 245k f’cast, 250k prev

Continued Claims

1945k vs 1940k f’cast, 1951k prev

Building Permits

1.393m vs 1.430m f’cast

Housing Starts

1.256m vs 1.36m f’cast

Market Movement Recap

09:28 AM Modestly stronger overnight and little-changed after econ data.  MBS up 2 ticks (.06) and 10yr down 1.8bps at 4.366

11:21 AM Slightly friendly lead-off ahead of Fed.  MBS up 6 ticks (.19) and 10yr down 3.3bps at 4.351

02:15 PM Almost no reaction to Fed so far.  MBS up an eighth and 10yr down 1.5bps at 4.369

03:22 PM A bit of weakness during press conference, but leveling off now.  MBS still up 1 tick (.03) and 10yr up less than 1bp at 4.386

Privatizing Fannie Mae and Freddie Mac risks a return to the kind of perilous mortgages that helped cause the global financial crisis unless regulatory safeguards are kept in place, an affordable housing nonprofit said in a paper on Tuesday.

Prior to this development, the CFPB was the sole industry participant to publish an average prime offer rate index on a weekly basis.

None of the economists surveyed by Wolters Kluwer predict the Fed will cut rates at this week’s meeting, few expect one in July and 41% said after September.

The anti-evasion exception introduced during the Covid-19 pandemic provided servicing flexibility to help borrowers struggling for many reasons, ABA said.

The closed meeting between the Federal Housing Finance Agency, the Treasury, and the Securities and Exchange Commission is the first since 2017.

Mortgage rates continue operating in a narrow range with almost every day of the past two months falling between 6.8 and 7.0% for a top tier 30yr fixed scenario. Today’s average rate fell 0.03 after moving up 0.06 since June 12th. This morning’s most relevant potential influence–the Retail Sales report–turned out to have a limited impact this morning.  To be fair, when rates are as stable as they have been, there’s no need to overanalyze their underlying motivations.  For those determined to do it anyway, today’s best example may have been general market anxiety surrounding war in the Middle East. We have yet to see any huge market reaction in response to any of the geopolitical headlines, but there was a reaction that played out over the course of several hours that helped the bond market gain some ground. When bonds improve, mortgage lenders are able to offer lower rates.  Tomorrow’s Fed announcement adds to the potential volatility in a more serious way.  This has nothing to do with “cut vs no cut” (there is zero chance of a rate cut tomorrow) and everything to do with the other information the Fed presents on announcement days. Of this info, it is the dot plot (a chart in the Fed’s economic projection materials that show each Fed members’ rate outlook over the next few years) that carries the most weight.  Caveat: POTENTIAL volatility is just that.  Sometimes Fed announcement days end up leaving rates fairly unchanged.  There’s no way to now which way things will move ahead of time, only that the risk is higher than normal.

Dot Plot in Focus With Fed’s “No Cut” Announcement

Bonds lost some ground after this morning’s economic data, arguably in response to the Retail Sales control group beating its forecast.  Higher-than-expected import prices could also have played a supporting role, but the selling was too modest to worry about perfectly allocating the blame.  It was also erased by an afternoon rally that was best explained by general risk-off vibes surrounding geopolitical headlines.  Here too, we’re not seeing anything too compelling in terms of trading justification.  The best bet on that front would be Wednesday’s dot plot from the Fed (the chart showing each Fed member’s rate outlook over the next few years).  That will be released at 2pm with the “no cut” announcement.

Econ Data / Events

Retail Sales

-0.3 vs 0.1 f’cast, 0.0 prev

Core Retail Sales

0.4 vs 0.3 f’cast, -0.1 prev

Export Prices

-0.9 vs -0.7 f’cast, 0.1 prev

Import Prices

0.0 vs -0.2 f’cast, 0.1 prev

Market Movement Recap

09:09 AM Stronger overnight, flat after data, and losing some ground now.  MBS still an eighth higher on the day and 10yr down 3.5bps at 4.417

01:53 PM Best levels of the day now on Middle East newswires.  MBS up 5 ticks (.16) and 10yr down 6.5bps at 4.386

Bonds were decently stronger in the overnight session, but not for any new, specific reasons.  Trading levels have been cutting an increasingly narrow, sideways range.  Until that changes, a moderate rally following 2 days of weakness is the least surprising outcome. But that was before the AM data, which featured Retail Sales at -0.9 vs =0.8 f’cast.  One would think that’s worth more bond buying, but the control group (retail sales excluding autos/gas/building materials) rose to 0.4 vs 0.3 and had a small positive upward revision to last month. We’ve seen the control group set the tone on several occasions regardless of the headline.  With bonds losing some ground after the data, today seems like yet another example.