Good Wednesday AM on this best day of the week.
ADP payroll numbers were through the moon today. That took bonds from improving to selling off at the end. We are sticking at the lows right now and will likely stay here until the Fed meeting statement at 11am and then the press conference at 11:30.
As for the Fed, it has been more than clear that it will announce a reduction in bond purchases today. This has been an eventual part of the process since we had the initial round of stimulus in March 2020. Winding it down was only a matter of time and in all likelihood, the Fed would have pulled the trigger sooner if it could have predicted labor market dynamics more accurately. With tapering a foregone conclusion, does it even matter anymore? As far as tapering itself is concerned, no. The longer end of the yield curve (the stuff we care about in the mortgage market) has already priced tapering in. Tapering is not a rate hike. I don’t want to make a long point on this, but the Fed will just buy a bit less of the bonds that are in circulation. As it applies specifically to mortgage bonds, they will likely still be buying for the time, a larger percentage than they have been as the amount of available mortgage bonds has diminished with refinances slowing. Additionally, the proceeds the Fed receives in monthly payments, are reinvested back into new bond purchases. So the bottom line is that as long as inflation expectations don’t increase and/or the Fed does not talk about rate hikes, I don’t think we will see much of a reaction in rates.
In case you missed one of the big headlines yesterday, here it is again… Zillow is exiting from the home-flipping business, saying Tuesday that its algorithmic+ model to buy and sell homes rapidly doesn’t work as planned. Amazing how so many people knew this two years ago, but Zillow continued down the path to lose both investor cash and shareholder equity. Don’t get me started on the subject of using investor money to gamble with.
If you’re worried about rates, stay close to the news around 11.
Please remain safe and healthy, make today great.