Wow!  Big open for bonds.  UMBS up 59 bps.   S&P futures down 12.25

ADP Employment  =  113k vs 150k f’cast, 89k prev

Treasury announced the 2nd phase of this week’s details on increased auction amounts.  This time, we got the specific auction amount recommendations as well as a write up of the Treasury Borrowing Advisory Committee’s recommendations.  One key concept was that we may only see one more quarter of increased auction amounts:

” no increase in 20yrs, and a more modest increase in 7yrs relative to other points on the curve. At this point, the Committee expects that the need for similar further increases at the Q2 FY2024 meeting is likely, but increases beyond Q2 FY2024 may not be required.”

In addition, the increase to auction amounts was slightly lower than the street expected.

ISM Manufacturing = 46.7 vs 49.0 f’cast

ISM Prices  =  45.1 vs 45.0 f’cast

JOLTS  = 9.553m vs 9.25m f’cast

last month revised to 9.497 from 9.61

Stocks are lower as we await the FOMC decision at 2:00. Bonds and MBS are flat.

The Fed is expected to hold rates steady at 2:00 pm but keep open the possibility of another rate hike at the December meeting. That said, there is the possibility they could consider the big run up in the 10 year to be a substitute for another rate hike.

Multivariate core inflation rose 2.9% in September, according to the New York Fed. This was a 0.3 ppt increase from August’s upwardly-revised 2.6%. Housing and services ex-housing were the big drivers.

A Missouri jury delivered a $1.8 billion verdict against the National Association of Realtors and several real estate companies for conspiring to drive up commission costs. The plaintiffs called the commissions “a market-shaping and distorting rule that has severe anticompetitive effects.” We are seeing real estate stocks like Zillow, Compass, Re/Max and Redfin get tossed aside this morning.

The Fed only made two changes to the last statement:

  1. Instead of saying “job gains have slowed in recent months but remain strong,” the Fed now says “job gains have moderated since earlier in the year but remain strong.”
  1. Instead of referring to tighter credit conditions for households” as weighing on economic activity, the Fed added “tighter financial and credit conditions.”

These are relatively insignificant changes in the big picture and they’re resulting in an insignificant move in the bond market.  Any “big takeaway” from today’s Fed events will have to come from the press conference, as expected.

When traders/analysts look back to see what was on the calendar when 10yr Treasury yields broke below the 4.8% level after 2 weeks of choppy, sideways consolidation, they’ll assume the Fed was the inspiration for the big rally.  That will only be partially accurate.  In fact, the Fed didn’t really do or say anything that warranted a big rally.  Instead, it was this morning’s slew of economic data and the Treasury refunding announcement that did most of the heavy lifting.

UMBS ended the day up 59 bps at 99.91.   Some of the lower coupons actually did better.   Ginnies did well too

California Gov. Gavin Newsom has signed into law Assembly Bill 1033. It allows accessory dwelling units (ADUs) to be sold separately from the homes they are associated with, in effect creating two- or three-unit condominiums.

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