WTMS Blog Today = What’s up in Mortgage Today – 04/05/24

A wave of selling hit the mortgage-backed securities market today, with opening figures tumbling and a bearish trend taking hold across bond maturities. This market jolt stems partly from inflation concerns, perked up by recent comments from Federal Reserve Chairman Jerome Powell, suggesting we might not be on the brink of an inflation comeback, but still facing elevated levels. Today’s manufacturing data showed growth and rising prices, intensifying worries over inflation and challenging hopes for imminent rate cuts. Futures markets are now betting with moderate confidence on a rate decrease by June, though no change is expected in May. Bonds reacted to this mix of data and remarks with a ‘bear steepening’, a situation where long-term yields rise faster than short-term ones, indicating a complex investor outlook on future economic growth and inflation. Powell’s talk at the San Francisco Fed hinted that historically low-interest rates are a thing of the past, with the ‘new normal’ likely settling between 3% and 4.5%. This perspective puts a cap on expectations for a significant drop in mortgage rates or a surge in home prices, as the Fed seems to aim for a middle ground in its rate strategy, especially in the context of housing affordability challenges. By the day’s end, mortgage securities had dipped significantly, closing down by 37 basis points, reflecting the day’s cautious and reactive trading atmosphere.

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