The Final Countdown

And so it begins. Today marks the 3 day rate-fest as the FOMC meeting kicks off, along with a Durables number that just dropped and missed. We get the decision tomorrow and finally q1 GDP on Thursday. Bond yields are now soaring, relatively speaking, as we are fast approaching the higher end of our range, sitting this morning at 1.92 before the data. So what are the wins and losses, hits and misses that we can expect?  

There’s no presser tomorrow. Conventional wisdom has been that they won’t hike without being able to discuss it after. You don’t have to be clairvoyant to figure out they won’t hike tomorrow anyway, but there is a chance they may alter the statement.  

From a technical standpoint, we are back above 1.90 and right in the middle of our post 2/1 range in mortgages. That suggests a float bias to me. The way I see this lining up is that a GDP disappointment is more likely than not and we have just as much room to rally as we do to sell off. Therefore on purely a percentage basis we have a little more to win than lose. If this was two weeks ago and we were sitting 1.7x, I’d say lock for sure. Here however, there’s some room to play it a little looser than I generally recommend.  

Lastly, I’d imagine as the Fed goes, so will GDP. They’ll clearly have insight into Thursday’s numbers. Therefore if we get a jolt or unexpectedly movement in the statement to either side of the rate bias, I’d surmise that Thursday would carry that through.  

So where do we end up on 5/1?  I really can’t envision anything above 2%. I just don’t see it. Other than claims, the data doesn’t support it. In fact, I’m not even sure why claims have been so strong.  Most of the earnings season strength is being fueled by sweeping cuts and layoffs. Yet the jobs picture continues to paint a better picture than it should.  

And what do I do tomorrow?  If rates move lower after 2:00PM, I’d ride that wave into Thursday with one caveat. If a borrower has been chasing the lock miss since 1.7x and the loan is closing in the next few weeks, I’d take the bounce, lock it and run. Conversely, if the Fed is surprisingly hawkish and we break 2, I’d lock to protect. Look, we’ll catch a bid at some point for sure. Everyone short at 1.6x, 1.7x is going to take profit at some point. What point that is will be the question. As you know, I tend to be conservative, so frankly I wouldn’t want to sweat that out. Remember, bulls and bears my friends!!!  

Let’s finish this record month strong!

Philip N. Mancuso, Chief Investment Officer

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