Why Bonds Are Rallying Despite a Fed Hike and a Stubborn Dot Plot

Today promised to be one of the most interesting Fed days in a long time and it did not disappoint.  Despite a 25bp rate hike and an even worse dot plot than last time (Fed sees rates staying a quarter point higher in 2024 than they did before), bonds rallied fairly substantially.  This could have to do with a verbiage change in the statement that signified a potential shift in policy tightening or with Powell’s comments on banking issues acting as de facto tightening that prevents the Fed from needing to hike as much.  Last but not least, by saying banking issues will result in tighter credit conditions, Powell effectively told banks “hey… all your friends are going to be making fewer loans, or raising rates/hurdles for those loans.”  

Econ Data / Events

No significant econ data.  Waiting on the Fed

Market Movement Recap

09:43 AM Just barely weaker overnight, but bouncing back in early domestic trading.  10yr unchanged at 3.607 and MBS up 2 ticks (0.06).

12:40 PM Bonds rallying in the run up to the Fed announcement, but not due to Fed expectations (otherwise stocks would be rallying as well, and they’re not).  10yr down 4.2bps at 3.566 and MBS up an eighth of a point. 

03:32 PM Sharply stronger after Fed events with MBS up more than 5/8ths and 10yr down 11bps at 3.498.
Source: Mortgage News Daily