UMBS down 11 bps in early trading. Stock futures down 9 pts

US Treasuries slipped ahead of minutes from the Federal Reserve’s latest policy meeting that could provide

more clues on when the central bank will start cutting interest rates.

On Tuesday, two central-bank officials advocated for patience on rate cuts, arguing that more evidence of cooling inflation is needed before easing begins. The US is also set to sell $16 billion in 20-year bonds on Wednesday, adding to pressure on longer-dated debt.

Price pressures have long been a key data point for investors trying to gauge the Fed’s next move, but — following a

report last week, which showed inflation easing for the first time in six months — the central bank’s view of consumer prices has become even more closely scrutinized.

Fannie Mae expects overall economic growth to slow and for mortgage rates to finish 2024 around 7%. Housing activity overall is expected to slow slightly. Inflation is expected to moderate over the summer and the first rate cut is expected in September.

Multifamily Rents fell 0.8% YOY, according to research, while single family rents rose 3.4%. The decline in multifamily rents is largely due to increased supply, as we have had a record number of multi-fam units under construction. Below is a chart of the number of units in multifamily buildings under construction. It has begun to pull back, but we saw a big spike during the pandemic.

Today’s only event that has any precedent of inspiring rate volatility was the release of the minutes from the Fed meeting that took place 3 weeks ago.  The fact that 10yr Treasury yields held roughly inside a 1bp trading range after the release tells us everything we need to know.  It was every bit as uneventful as we expected.  Even so, was there anything to learn?  Not really…

The Minutes were wholly unsurprising to anyone who’s seen most of the recent Fed newswires.  Bonds were slightly weaker in the overnight session due to UK inflation coming in hot, but mostly in the shorter end of the curve.  That meant modest underperformance for MBS (mortgages’ average life span is still seen as being quite a bit lower than 10 years, so they take cues from shorter-term bonds as well).

UMBS ended the day down 16 bps at 100.37

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