From Bad to Worse as Powell Doubles Down on Policy Shift
Things were already fairly ugly this morning as the bond market opted to pay no attention to last Friday’s consolidation potential. Fed Funds Futures showed the market pricing in at least one 50bp hike in addition to a 25bp hike at every remaining Fed meeting this year. Powell’s scheduled speech added a significant amount of fuel to that fire at 12:30pm. He did nothing to try to calm the market down, but instead, essentially told traders they were correct in rushing to price in more rate hikes and faster policy normalization. This resulted in overnight losses more than doubling across the curve, and widespread negative reprices.
Econ Data / Events
Fed MBS Buying 10am, 11:30am, 1pm
Existing Home Sales 6.02m v 6.10m f’cast, 6.49m prev
Market Movement Recap
08:51 AM Sharply weaker overnight on oil prices, hawkish central bankers, and rate hike expectations. 10yr up nearly 8bps at 2.23% and MBS down nearly 3/8ths of a point in 3.5 coupons.
11:05 AM Weakness continues with MBS at new lows, down 13 ticks (.41) at 100-21 (100.66). 10yr up 9.5bps to new highs of 2.248.
01:34 PM Market is in relative shock over the Fed’s persistence on policy tightening (via today’s Powell speech). 10yr up a whopping 14bps at 2.293 and 3.5 UMBS down 3/4ths of a point.
03:54 PM Fairly linear weakness after the initial Powell-inspired shock. 10s are up 15+ bps at 2.304 and MBS are down 7/8ths of a point. Both look like they’re trying to level off into the close, but it doesn’t really matter at this point. The damage is done, and nothing about the final hour has a bearing on what tomorrow may hold.