Stocks are higher this morning after the Fed maintained rates at current levels. Bonds and MBS are down due to a lack of progress in the Persian Gulf.
As expected, the Fed maintained the Fed Funds rate at current levels. The language was pretty much the same language the Fed has been using. As expected Stephen Miran dissented, preferring to cut interest rates. There were three other dissenters: Hammack, Kashkari and Logan who objected to the inclusion of “easing bias” language in the statement. FWIW, the statement consistently refers to both sides of the mandate, so I am not sure what they are objecting to. Yes, there has been the perception that they are leaning towards easing (if only because monetary policy is tight in the first place) but the language in the FOMC statements for a long time has referred to both sides of the mandate.
Bonds, which had been weak all day sold off further. The December Fed Funds futures still forecast no further changes to monetary policy this year, but the chance of a hike is now larger than the chance of a cut.
Jerome Powell has stated that he won’t leave the Fed until the issue of the renovation is resolved. Trump suspended the DOJ’s investigation in order to get Kevin Warsh confirmed, but that apparently isn’t good enough. Powell will remain as a Governor and will let Warsh run the show.
March housing starts rose 11% MOM and YOY to a seasonally adjusted annual rate of 1.5 million units. Feb starts came in at 1.3 million. Building permits were down.
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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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Durable Goods orders rose 0.8% MOM, which was better than Street forecasts. This follows a 1.2% decrease in February. Much of the increase came from defense spending. Ex-defense durable goods orders rose 0.3%.
