The overnight session was very quiet for bonds with most major markets closed for various holidays.  The first meaningful movement followed the ISM Manufacturing report's major miss (52.8 vs 55.0).  This was the lowest since October 2016 and several internal components were at longer-term lows as well.  Bonds rallied several bps and then locked in to a sideways approach before the Fed.

The announcement itself was slightly dovish.  The Fed removed its reference to energy prices being an explanation for low inflation.  It retained its "patient" verbiage, and it didn't directly mention that foreign economic risks had subsided.  Bonds rallied a bit more as a result.

But during Powell's press conference, the Fed Chair said that there was indeed slightly less risk posed by foreign economies in the time since the last Fed announcement.  He also said that there was no reason to believe one way or the other that the Fed's next move would be a hike or a cut.  Market participants had perhaps hoped he would give at least some small indication that a cut was possible later this year or early next year.

Unsurprisingly then, Fed Funds Futures led the reversal in bond yields.  Weakness in shorter-dated maturities (think 2yr Treasuries as opposed to 10yr) radiated out the yield curve.  10yr yields actually remained unchanged on the day while 2yr yields ended the day up more than 4bps.  In the bigger picture, this keeps the technical outlook unchanged as 10yr yields are still unable to break below 2.50%.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
100-31 : +0-02
Treasuries
10 YR
2.5020 : -0.0050
Pricing as of 5/1/19 5:01PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:43PM  :  ALERT ISSUED: Bonds Surge Back Into Weaker Territory; Negative Reprice Risk
2:05PM  :  Fed is Still Patient. Bonds Rallying
10:05AM  :  ISM Much Weaker. Bonds Like It
8:32AM  :  ADP Employment Surges. Bonds Barely Budge

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
E S  :  "Exactly when the selloff started...The Presser strikes again!!"
Matthew Graham  :  "230"
E S  :  "What time did the presser start?"
Matthew Graham  :  "I don't think that had anything to do with the movement. I think it was as simple as Powell's speech saying 2 things the announcement didn't say: 1) EU/China stabilizing, 2) no case for a rate cut."
Scott Valins  :  "MG can you explain what happened? Were we assuming they were going to buy long bonds and now it's unknown?"
Matthew Graham  :  "FED'S POWELL SAYS STILL EXPECTS MODEST GROWTH FROM MANUFACTURING SECTOR"
Matthew Graham  :  "FED'S POWELL SAYS DATA NOT PUSHING FED IN EITHER DIRECTION ON POLICY"
Matthew Graham  :  "RTRS - FED'S POWELL SAYS CONTROLLING FED FUNDS RATE WITHIN RANGE IS GOOD"
Matthew Graham  :  "FED'S POWELL SAYS DOESN'T SEE CASE FOR MOVING POLICY IN EITHER DIRECTION"
Matthew Graham  :  "RTRS - FED'S POWELL SAYS RISKS ABROAD HAVE MODERATED A BIT"
Matthew Graham  :  "RTRS - FED'S POWELL SAYS CORE INFLATION DROP IN EARLY 2019 WAS UNEXPECTED; THERE MIGHT BE TRANSITORY FACTORS AT WORK"
Matthew Graham  :  "RTRS - FED'S POWELL SAYS ECONOMIC GROWTH AND JOB GROWTH HAS BEEN STRONGER THAN COMMITTEE EXPECTED AND INFLATION WEAKER"
Matthew Graham  :  "FED REPEATS WILL BE PATIENT AS IT DETERMINES WHAT FUTURE ADJUSTMENTS TO RATES MIGHT BE APPROPRIATE"
Matthew Graham  :  "FED SAYS TO ROLL OVER PRINCIPAL PAYMENTS FROM ITS HOLDINGS OF TREASURY SECURITIES THAT EXCEED $15 BLN AS PREVIOUSLY ANNOUNCED"
Matthew Graham  :  "FED SAYS JOB GAINS HAVE BEEN SOLID; GROWTH OF HOUSEHOLD SPENDING AND BUSINESS FIXED INVESTMENT HAVE SLOWED"
Matthew Graham  :  "FED SAYS OVERALL AND CORE INFLATION HAVE DECLINED ON A 12-MONTH BASIS; REMOVES REFERENCE TO LOW INFLATION BEING DUE TO ENERGY PRICES"
Matthew Graham  :  "- FED SAYS INFORMATION RECEIVED SINCE MARCH INDICATES ECONOMIC ACTIVITY HAS RISEN AT A SOLID RATE"
Matthew Graham  :  "FED CUTS INTEREST ON EXCESS RESERVES RATE TO 2.35 PCT FROM 2.40 PCT TO KEEP FED FUNDS RATE WELL WITHIN TARGET RANGE"
Matthew Graham  :  "FED KEEPS TARGET INTEREST RATE UNCHANGED AT 2.25-2.50 PCT"

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, May 01
7:00 Mortgage Refinance Index w/e 1228.3 1293.0
7:00 MBA Purchase Index w/e 259.4 269.3
8:15 ADP National Employment (k)* Apr +275 180 129
10:00 ISM Mfg Prices Paid * Apr 50.0 55.1 54.3
10:00 ISM Manufacturing PMI * Apr 52.8 55.0 55.3
10:00 Construction spending (%)* Mar -0.9 0.1 1.0
14:00 FOMC rate decision (%)* N/A 2.25 - 2.50 2.375 2.375
14:35 Powell Press Conference *