According to the Federal Reserve Board’s latest financial stability report, persistent inflation and policy uncertainty are the primary worries for banks. Survey respondents expressed heightened anxiety over murky policy outlooks due to geopolitical turmoil and rapidly approaching domestic elections.

Leaders of ORNL Federal Credit Union are piloting Zest AI’s new artificial intelligence-powered assistant to ensure equitable underwriting practices and measure performance against similar institutions.

McCargo stabilized the agency at a crucial time as she helped navigate it through both a pandemic and subsequent dramatic interest-rate cycle change.

The quasi-public entity’s plan to buy certain closed-end seconds would constitute “unnecessary government encroachment,” the Structured Finance Association said.

The mortgage subsidiary of Hilltop Holdings posted another quarterly loss and volume slipped, but management also sees signs of optimism.

Sometimes Sideways is The Best Case Scenario

Granted, there was a possibility that today could have been a rally day for the bond market, but as seen in the overnight trading session, that possibility depended on the escalation of war in the Middle East.  There aren’t many other reasons for bonds to push back too much on recent weakness.  One of the only other reasons would be Friday position squaring and short covering, but that would be just as much of an indication of ongoing bearishness in bonds. In that sense, holding sideways is possibly the best victory we could have hoped for today. The fact that we’ve avoided Tuesday’s high yields through the end of the week could even signal sideways vibes until May, at which point data and the Fed will let us know the direction of the next big move.

Market Movement Recap

09:38 AM Initially stronger overnight, but giving up gains since then. 10yr down 1.7bps at 4.609.  MBS up 1 tick (.03).

10:27 AM 10yr all the way back to unchanged at 4.627.  MBS down 2 ticks (.06)

02:02 PM Broadly sideways and choppy, but currently unchanged in MBS and 10yr.

04:27 PM Still sideways.  MBS up 1 tick (0.03) and 10yr down half a bp at 4.622

The Fed expected to be able to cut rates 3 times in 2024 as recently as March. Financial markets agreed. But the data that’s come out since then has everyone singing a different tune.  This week’s data was more of an afterthought compared to last week’s. The chart above pertains to Fed rate expectations, and that’s not exactly the same as longer term rates like mortgages and 10yr Treasury yields.  The latter saw a bit more volatility this week. Monday’s Retail Sales data was much stronger than expected and markets reacted immediately.  Tuesday’s data was consequential, but it was followed by a speech in which Fed Chair Powell had an opportunity to provide some updated thoughts on the rate outlook.  After all, the Fed hadn’t seen the most recent CPI data (and several other strong reports) at the time the last round of rate projections came out in March. As the market expected, the tone is evolving.  While Powell and the Fed repeat that the rate path depends on economic data, it’s no surprise to see recent comments acknowledging a surprising amount of strength in the recent data.  Stronger data means fewer rate cuts.  Powell went as far as saying there was new uncertainty as to whether the Fed will even be able to cut in 2024. Two days later, NY Fed President John Williams struck similar tone.  Just last week, he had pushed back on the CPI data, saying the Fed wasn’t surprised by setbacks in the inflation data.  This week’s comments did more to acknowledge the other side of data dependency.  Specifically, Williams said the Fed could hike again if the data called for it.  

It is “Take Your Child to Work Day” next Thursday which, if you work from home, is probably like a day off from school for the tyke. (I won’t be bringing my son Robbie to work, who, as I write this, is pedaling from Chicago to New York and bunked down last night in Union Home’s Bill Cosgrove’s humble abode.) I do not track his exact whereabouts, but we all know that, in having a smart phone, one gives up pretty much all of their privacy. For example, a new working paper posted to the National Bureau of Economic Research sought to examine the polling data that indicates 22 percent of Americans reported attending religious services on a weekly basis. They did this by looking at geodata from smartphones of 2 million people in 2019, and found that while 73 percent of people did indeed step into a place of worship on a primary day of worship at least once over the course of the year, just 5 percent of Americans studied in fact did so weekly, significantly smaller than the data people reported to pollsters. (Found here, this week’s podcasts are sponsored by Optimal Blue. OB’s smart solutions automate critical functions like pricing, hedging, trading, and social media. More originators and investors rely upon Optimal Blue’s integrated solutions, data, and connections to support their unique business strategies, no matter how complex. Hear an interview between Robbie and me on a variety of topics in mortgage that are germane to the Daily Commentary.) Lender and Broker Products, Software, and Services

The overnight session began with a very clear flight to safety in stocks (sell) and bonds (buy) on headlines regarding increased hostilities between Iran and Israel.  There have been plenty of “increased hostility” headlines this week that have not had much impact.  These were different because the initial newswires played up the risk to Iran’s nuclear sites.  Shortly thereafter, the IAEA said there was no damage to nuclear sites and Iran said there were no plans for retaliation, despite previous warnings to the opposite effect.  With that, stocks and bonds began grinding back in the other direction–an effort that continues into early domestic trading.

The increasing frequency and severity of droughts was top of mind for panelists at AmeriCatalyst’s “Going to Extremes” conference Thursday.