Stocks are up this morning after good numbers out of Apple. Bonds and MBS are up small.
Personal incomes rose 0.6% MOM in March, while spending rose 0.9%. Disposable personal income rose 0.6%. The PCE Price Index, which is the Fed’s preferred measure of inflation rose 0.7% MOM and 3.5% YOY. If you strip out food and energy, the index rose 0.3% MOM and 3.2% YOY.
Inflation has been in a gentle upward trend since last last year, and the Iran war really accelerated the trend, especially in the headline number.
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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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First quarter GDP rose 2%, which was an improvement from the fourth quarter of 2025. Investment and exports drove the increase. The PCE Price Index rose 4.5% annualized in the quarter which was a big jump from Q4’s 2.9%. All of the inflation indicators are going the wrong way and it looks like we can forget about rate cuts this year.
The business press is already pushing the stagflation narrative, which is ridiculous in the context of 2% growth and 3.5% inflation and basically amounts to wishcasting. The best indicator for stagflation is the misery index, popularized in the 1970s which sums inflation and unemployment. We are on the low side of that measure historically:
The index of Leading Economic Indicators declined in March, according to the Conference Board. “After rising in February, the US LEI pulled back sharply in March, as building permits declined and consumer expectations and stock prices weakened,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The LEI continues to signal a slowdown in the economy over the coming months, as higher oil prices and supply chain tensions will likely place additional upward pressure on inflation and further reduce consumers’ purchasing power. The labor market, while currently stable, may soften with hiring slowing and unemployment edging higher. Growth will likely remain modest, as weaker consumer spending offsets some strength in business investment and defense-related activity. The Conference Board revised its US GDP growth forecast to well below 2%, down to 1.6% y/y for 2026.”
FWIW, the Atlanta Fed GDP Now model sees 3.7% growth in Q2, which is pretty robust.
