With all these leaks coming from the highly anticipated Marvel movie Avengers Endgame camp, I thought it might make sense to do a tie with that for today’s blog post. So what are we talking about?
What’s the Fed’s endgame?
Is this the endgame for hikes and 3% yields?
How about an economic endgame?
Maybe all of the above.
Yesterday’s Fed meeting brought with it a pretty significant rate rally. A great big green Hulk smash on screens if you will. What did they say that flooded money into bonds?
For me, I didn’t care much about what they said, but rather that they said it at all. You see, this is a Fed that has been hellbent on raising rates. For those of you that have followed my posts, you know that I believe they’ve been offsides quite a bit. They’ve seemingly doubled down on good data and tried to brush off the bad numbers for years now. Make no mistake, we did see some lift in the economy in the last year, but that’s evaporated in a Flash (yeah I know DC). I guess my ‘Spidey senses’ were right in the end though. That statement yesterday dropped like Thor’s hammer and we saw the mighty Fed capitulate a bit by signaling that the economy is softening.
That alone was enough to send bonds running, but the tweaking that they made in their balance sheet approach was the cherry on top. Any hint and an endgame to the Fed’s assault on rates is huge. For those that have been calling for a recession in the somewhat near term, and by now that’s just about everyone, what yesterday does is provide a back stop of sorts. The Fed’s march to higher rates has been about as hard to stop as a Juggernaut rampage and bond buyers have been apprehensive to run on bond friendly data. We rally and hang, pull back, move forward, hang. Since that quick drop from 3.2x, we’ve been in a holding pattern for most of Q1 and that’s why despite some lackluster data, we were hung up at 2.62 for so long. Yes the bond vigilantes have the good ’ole inversion trick in their bat utility belt (I know DC again), but if the Fed is giving in to the data, there’s really nothing holding us back other than the data itself.
What does this mean for Mortgage Loan Originators or even the average borrower? It will be no surprise to hear that I’m about as bullish on yields as I’ve ever been. If you push out to a multi-year chart, the next stop is way out there for most coupons, so I see a lot of room to run. The flip side of that is with so much room, we need some reasons to run that much farther and I’m not sure that’s coming tomorrow. But alas, with great power comes great responsibility. So I’d be day to day right now, with a float bias for sure. Believe me, if you lock in at these rates and we test 2% in the next 12-18 months, your friendly neighborhood loan officer will be happy to refinance you, here at Equity Prime Mortgage we do ‘whatever it takes’ to help you realize your dreams of homeownership…
As the late, great Stan Lee would say, ‘Excelsior!’