Quite the open on the markets. MBS up 33 bps, the 10 yr down only 3, stocks up 8.

Bonds were unchanged for the first half of the overnight session, largely because they were not trading in Asia due to holiday closures (futures still trade, but they were flat, as is often the case when the cash market is closed).

Things picked up at the start of European trading with Bunds leading Treasuries several bps lower from 3.44 to 3.39. The 8:15am data caused a brief jump back above 3.42%, but we’re already back down to 3.40%, holding a 3+ bp gain on the day.

ADP Payrolls = 296k vs 148k f’cast [142k prev]

Private payrolls rose 296,000 last month following a revised 142,000 increase in March, according to figures

published Wednesday by ADP Research Institute in collaboration with Stanford Digital Economy Lab. The figure exceeded all

forecasts in a Bloomberg survey of economists and was nearly double the median projection.

Hiring was led by leisure and hospitality, education and health services and construction. Companies in manufacturing and

financial activities cut jobs. Firms of all sizes boosted headcount.

ISM Non Manufacturing = 51.9 vs 51.8 f’cast, 51.2 prev

Prices 59.6 vs 59.5 prev

BFW 05/03 18:00 *FED RAISES BENCHMARK RATE 25 BPS TO 5%-5.25% TARGET RANGE

BFW 05/03 18:00 *FED OMITS PRIOR LANGUAGE THAT SIGNALED MORE HIKES AHEAD

BFW 05/03 18:00 *FED: EXTENT TO WHICH MORE FIRMING NEEDED HINGES ON ECONOMY

BN 05/03 18:00 *FED: ECONOMIC ACTIVITY EXPANDED AT MODEST PACE IN FIRST QTR

BN 05/03 18:00 *FED SAYS JOB GAINS HAVE BEEN ROBUST IN RECENT MONTHS

BN 05/03 18:00 *FED: INFLATION ELEVATED, HIGHLY ATTENTIVE TO INFLATION RISKS

BN 05/03 18:00 *FED REPEATS US BANKING SYSTEM IS SOUND AND RESILIENT

BN 05/03 18:00 *FED SAYS WILL TAKE CUMULATIVE TIGHTENING, LAGS INTO ACCOUNT

BN 05/03 18:00 *FED SAYS TIGHTER CREDIT CONDITIONS LIKELY TO WEIGH ON ACTIVITY

BN 05/03 18:00 *FED: EXTENT OF EFFECTS OF TIGHTER CREDIT CONDITIONS UNCERTAIN

BN 05/03 18:00 *FED WILL CONTINUE SAME PACE OF REDUCING TREASURY, MBS HOLDINGS

BN 05/03 18:00 *FED SAYS FOMC VOTE UNANIMOUS

BN 05/03 18:00 *FED RAISES IOR TO 5.15%, DISCOUNT RATE TO 5.25%

There was really only one option for the Fed today: hike rates by 25bps but signal a willingness to let that be the ceiling.  That’s essentially what the Fed delivered, both in the announcement itself and again (multiple times) in the press conference.  In addition, Powell didn’t express much concern about the banking sector other than to say that it implies credit tightening.  He also reminded us that Fed economists are still forecasting a mild recession later this year.  All of the above was about as good as the bond market could have hoped for today.

Bond market liked the Fed news more than stocks.   MBS ended the day up 27 bps.  10 yr down 6 bps.   Stocks lost 36 points during the day.

Larry Summers was interviewed on Bloomberg TV yesterday, and the interviewer asked about reports that up to half of US banks would have negative equity if everything was marked to market. I personally have not seen such reports, but that is a remarkable statistic if true.

Larry’s answer didn’t push back against that claim, however he called it somewhat alarmist because it didn’t take into account that many banks have deposit rates below the interest rate earned on these Treasuries and MBS assets, so they are earning a spread and that below-market rate deposits could be considered asset-like. Of course the problem with that theory is that the bank isn’t in control of that asset. It doesn’t get to determine whether it stays on the balance sheet – the depositor does.