fed

Warehouse lenders facing fallout from industry woes

Recent bond-rating reports shine a spotlight on the deposit and investment-portfolio shortcomings of two banks offering warehouse lines – Comerica and Western Alliance.

Bank Failures Show Us What Not to Do With Our Own Finances

Money News & Moves: Remembering important money-managing lessons that some bank execs apparently forgot.

Why Bonds Are Rallying Despite a Fed Hike and a Stubborn Dot Plot

Why Bonds Are Rallying Despite a Fed Hike and a Stubborn Dot Plot Today promised to be one of the most interesting Fed days in a long time and it did not disappoint.  Despite a 25bp rate hike and an even worse dot plot than last time (Fed sees rates staying a quarter point higher in 2024 than they did before), bonds rallied fairly substantially.  This could have to do with a verbiage change in the statement that signified a potential shift in policy tightening or with Powell’s comments on banking issues acting as de facto tightening that prevents the Fed from needing to hike as much.  Last but not least, by saying banking issues will result in tighter credit conditions, Powell effectively told banks “hey… all your friends are going to be making fewer loans, or raising rates/hurdles for those loans.”   Econ Data / Events No significant econ data.  Waiting on the Fed Market Movement Recap 09:43 AM Just barely weaker overnight, but bouncing back in early domestic trading.  10yr unchanged at 3.607 and MBS up 2 ticks (0.06). 12:40 PM Bonds rallying in the run up to the Fed announcement, but not due to Fed expectations (otherwise stocks would be rallying as well, and they’re not).  10yr down 4.2bps at 3.566 and MBS up an eighth of a point.  03:32 PM Sharply stronger after Fed events with MBS up more than 5/8ths and 10yr down 11bps at 3.498.

With mortgage rates dropping, the conforming and jumbo loan spread narrows

Freddie Mac’s Primary Mortgage Market Survey showed on Thursday that the 30-year fixed-rate mortgage at 6.42% as of March 23, down 18 basis points from the previous week.

Why Do Mortgage Rates Go Down When the Fed Raises Rates?

Yesterday, the Federal Reserve raised its benchmark federal funds rate a quarter point (.25%). As a result, some may have expected consumer mortgage rates to also rise by .25%. So if the 30-year fixed were priced at 6.75%, it would climb to 7.00% due to the Fed’s action. But the opposite occurred. The 30-year fixed… Read More »Why Do Mortgage Rates Go Down When the Fed Raises Rates?

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Fed Hikes Rates; Rates Drop Sharply. Here’s How That Works

There was some debate as to whether or not the Federal Reserve would hike the Fed Funds Rate today, although the consensus was for a 0.25% increase.  That’s exactly what the Fed delivered.  Additionally, markets were (and still are) betting that the Fed cuts rates by roughly 0.75% by the end of the year, but the Fed’s just-released forecasts show zero rate cuts by the end of the year and slightly HIGHER rates by the end of 2024. Despite all this, Treasury yields (a benchmark for mortgage rates) and mortgage rates themselves fell significantly after the Fed news came out. Why in the world could that happen?   First off, the Fed Funds Rate is not a mortgage rate, nor does it directly affect mortgage rates by the time the Fed actually hikes or cuts.  More importantly, Fed Chair Powell spoke about upcoming tightening of lending conditions due to the recent banking drama.  That may seem like a simple enough comment, but it carries a lot of weight in terms of shaping economic momentum. Lending and credit are critical to growth and inflation.  If lending subsides (fewer loan programs or more restrictive requirements to qualify), it puts additional downward pressure on inflation.  And inflation is the key reason rates have remained high. Long story short, in spite of the Fed rate hike and the relatively unchanged outlook for 2024, the market saw some indication of a policy pivot in Powell’s comments–some shifting of the big picture cycle of economic growth and inflation.  Either that, or Powell’s warning on banks caused investors to fear additional banking issues in the days/weeks ahead.

Powell stresses commitment to cooling prices as Fed hikes rates

The Federal Reserve raised interest rates at a ninth straight meeting and indicated there may be more hikes to come in a clear sign it’s confident that its bid to quell inflation won’t deepen a nascent banking crisis. The Federal Open Market Committee voted unanimously to increase its target for the federal funds rate by … [Read more…]

One of The Most Important and Interesting Fed Days in a Long Time

It’s difficult and probably not that important to rank today’s Fed day against other iterations over the past few years.  It’s easy to say that it is probably the most interesting Fed day in at least a few years.  We wouldn’t even entertain competition after the start of the tightening in late 2021 and that was arguably broadcast fairly clearly.  The only reason to bring this up is to reiterate that there’s a lot to learn about how this Fed regime will balance financial stability against its inflation fighting goals.  Past comments give a clear nod to inflation fighting, but this is their chance to confirm it with a rate hike and no major change in the dot plot. Timing of events this afternoon: 2:00PM ET – Fed Announcement AND the dot plot. 2:30PM ET – Fed Chair Powell press conference begins We continue to assume that the dot plot will be at odds with the market’s expectations based on Fed Funds Futures.  Dots were fairly unified for a 5.0-5.25 rate by the end of 2023 as of the December meeting.  If anything, hawkishness increased since then. Fed Funds Futures have a drastically different take for the end of 2023 after the recent bank drama: Futures admittedly aren’t designed to predict the dot plot.  We would expect the dots to act as a policy tool to some extent even if Fed members secretly suspect rates could end up lower than their dot suggests.  More simply put, the dots are based on the info available today about inflation and its trajectory whereas futures go a step farther and consider how recent events are likely to shape inflation and the economy in the near future.  Bottom line: it won’t be a surprise to see the dots at odds with futures.  It will simply be interesting to see how big the differences are and how markets react to that.  The stakes for longer-term rates are bookended by 3.40 and 3.6 yet again, although 3.60 is a much softer pivot point seeing as how it’s been broken twice in the past few months.  

Why industry watchers expect mortgage rates to fluctuate in coming weeks

Mortgage rates, which climbed one day and dropped the next after the bank failures, will be volatile before stabilizing, experts say.