Stocks are flattish as we await the Fed’s decision. Bonds and MBS are down.
The Fed’s decision is due at 2:00 pm. No change in rates is expected, however the critical piece will be if the statement telegraphs that rate hikes are on the table. There will be a press conference afterward, though keep in mind that this will be Powell’s last, and a new Chairman will be running the show.
Home prices rose 0.7% YOY in February according to the Case-Shiller Home Price Index. On a monthly basis prices rose 0.1%. The hip-to-be-square trade continues, with strength in the Midwest and Northeast and weakness in the West and South. “Leadership remains concentrated in Midwest and Northeast markets. Chicago led all metros at 5.0% annual growth, followed by New York (4.7%) and Cleveland (4.2%) — the same trio that has anchored this cycle’s leadership. The 7.2 percentage point spread between Chicago and Denver illustrates how localized the housing story has become.”
“More than half of major U.S. metropolitan markets posted year-over-year price declines in February, signaling that the housing slowdown has broadened well beyond its Sun Belt origins,” said Nicholas Godec, CFA, CAIA, CIPM, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “The S&P Cotality Case-Shiller National Home Price Index rose just 0.7% year over year in February, down from 0.8% in January. With consumer inflation at 2.4%, U.S. home values have lost ground in real terms for nine consecutive months.
HUD has rolled back some Biden-era regulatory provisions in order to make homebuying more affordable. The regulatory rule required new construction to be compliant with the 2021 International Energy Conservation Code (IECC), which HUD estimates adds up to $31,000 to the price of a new home. “By rescinding this mandate, we are removing a significant regulatory barrier that added tens of thousands of dollars to the cost of a new home,” said Secretary Turner. “The Trump Administration’s focus is to facilitate new housing supply and ensure that every American family has a path to homeownership without being sidelined by bureaucratic red tape.”
“Affordable rural housing is a top priority for the Trump Administration, and we are focused on removing all the unnecessary restrictions that artificially drive up new home prices,” said Secretary Rollins. “We launched the Rural Revival Agenda at USDA to bring rural communities to the forefront of our actions, and this joint determination restores common sense to our programs and ensures that we can continue bringing new affordable housing supply online for Americans.”
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Interest rate volatility can spike at any time. Think of the past catalysts: COVID, Brexit, 2008. When volatility spikes, MBS spreads widen and your gain on sale decrease. One way to hedge that risk is to use options, which increase in value when volatility spikes.
Many mortgage bankers have tried TBA options, but these require a dedicated counterparty and are illiquid. The Chicago Mercantile Exchange is now listing options on SOFR swap futures, which correlate well with mortgages, especially non-QM. Talk to ERIS about using margin-friendly SOFR Swap futures and options to hedge tail risk in your portfolio.
The CME put out the following press release on April 14th.
CME Group, the world’s leading derivatives marketplace, today announced it will launch options on Eris SOFR Swap futures on June 16, 2026, pending regulatory review. SOFR futures are a liquid way to manage interest rate risk. “Eris SOFR Swap options will help institutional investors manage risk with greater precision as they navigate varying expectations on the direction of U.S. interest rates,” said Michael Riddle, CEO of Eris Innovations. “By mirroring the structure of forward-premium OTC swaptions, Eris SOFR Swap options can deliver cost optimization, margin efficiencies and trading simplicity amid shifting economic conditions.”
Eris SOFR Swap futures replicate interest rate swap cash flows, offering the standardization and capital savings of exchange-traded instruments. The addition of options on 2-year, 5-year and 10-year Eris SOFR Swap futures will support more sophisticated hedging strategies, such as managing non-linear risk in mortgage-backed portfolios.
Since launching in October 2020, more than 10 million Eris SOFR Swap futures contracts have traded at CME Group. In March 2026, Eris SOFR Swap futures reached an all-time open interest record of 707,000 contracts ($71B notional), including a single-day volume record of 299,513 contracts on March 10.
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Rithm Capital reported first quarter adjusted earnings of $0.51 per share, which came in slightly below expectations. NewRez origination volume rose 31% YOY and gain on sale margins hit 144 basis points, up 7 bp YOY.
On the conference call, CEO Michael Nierenberg said: Right now, when you look over the course of the past quarter, a number of companies reported earnings. So I think everybody is expecting higher earnings on a go-forward basis. The economy feels pretty good while saying that we do feel that we’re going to get 1 or 2 rate cuts this year. When you think about the tariff situation, obviously, the President and the administration, their deal guys, they continue to negotiate deals across the board, and we think that’s going to continue.
So while there could be blips where the market sell off due to some uncertainties, we feel like — especially in light of the European deal that got announced over the weekend and now the administration trying to extend deadlines around the China tariffs, we feel like the policy uncertainty is declining. Risk appetite across the board remains high. [indiscernible] should continue to remain on the lower side right here. And what does that mean? That means all the products that we typically invest in should do much better. And then when we think about the yield curve, we have — the way we have been hedging our book, we’ve had rate steepeners on for many, many months.
The rate steepener bet means that Rithm thinks if the Fed cuts rates, the 10 year might not move all that much. That said, MBS spreads have a role to play here and they have been moving tighter as volatility exits the market.
Consumer Confidence improved in April according to the Conference Board. “Consumer confidence edged up in April but was overall little changed, despite material concern about rising gasoline prices as the war in the Middle East prompted a surge in Brent crude oil prices,” said Dana M Peterson, Chief Economist, The Conference Board. “Consumer appraisals of current and expected business conditions declined moderately compared to last month. This was offset by modest improvements in consumers’ perceptions of the labor market, both current and expected, as well as income expectations, which were slightly more optimistic in April.”
The survey period included the cease-fire and a rebound in the stock market.
Mortgage applications fell 1.6% last week as purchases rose 1% and refis fell 4%. “Mortgage rates increased slightly last week, with the 30-year fixed rate rising to 6.37 percent. The increase in rates led to a 4 percent decline in refinance application volume. However, purchase activity for conventional loans picked up almost 2 percent for the week,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “More notably, purchase application was more than 20 percent above last year’s pace. After a brief pause, in part because of the elevated geopolitical uncertainties, potential homebuyers certainly appear to be moving forward this spring and taking advantage of the more favorable inventory conditions in most parts of the country.”
Redwood Trust has entered into an agreement with Castlelake, an alternative investment firm, to purchase $8 billion worth of jumbo production. This is indicative of the value institutional investors see in mortgage backed assets.
