Morning Report: Zero percent rates until 2022.

Vital Statistics:


Last Change
S&P futures 3104 -84.1
Oil (WTI) 36.84 -2.39
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.19%


Stocks are lower this morning after the Fed maintained interest rates at current levels. Bonds and MBS are up.


The Fed made no changes to interest rate policy  yesterday. The part that got everyone’s attention:

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Fed will also maintain its purchases of Treasuries and MBS at the current pace. The economic projections include a 6.5% expected drop in GDP this year, an unemployment rate of 9.3%, and sub-1% inflation. The dot plot shows the Fed expects to keep rates at zero throughout 2020 and 2021.

dot plot

The gloomy outlook and the continued asset purchases are what seems to be driving the drop in stocks this morning and the strength in the bond markets. I guess we should expect mortgage rates to continue to ratchet lower as financial conditions thaw and more aggregators begin to get aggressive in pricing.


It seems like yesterday that the mortgage REITs were being thrown overboard. Bellwether Annaly just cut its dividend, which was to be expected, but it wasn’t that bad. In addition, it bought back $100 million worth of stock. With everyone out there deleveraging, I found it interesting that they chose to buy back stock as opposed to buying assets.


Meanwhile, initial jobless claims fell to 1.5 million and the producer price index fell 0.8% on a YOY basis.


The Trump Administration is considering another stimulus bill that would include more direct payments and further aid for small businesses. “We will have a significant amount of unemployment and we’re going to need to look at doing something there,” Mnuchin said. “I think we’re going to seriously look at whether we want to do more direct money to stimulate the economy, but I think this is all going to be about getting people back to work.”


Home Equity rose 6.5% in the first quarter, according to CoreLogic. The number of homes with negative equity fell by 16% to 1.8 million homes.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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