Morning Report: FOMC day

Vital Statistics:

	Last	Change	Percent
S&P Futures	2092.0	3.0	0.14%
Eurostoxx Index	3437.7	-16.4	-0.47%
Oil (WTI)	61.14	1.2	1.95%
LIBOR	0.283	-0.003	-0.98%
US Dollar Index (DXY)	94.84	-0.161	-0.17%
10 Year Govt Bond Yield	2.33%	0.02%
Current Coupon Ginnie Mae TBA	100.9	-0.2
Current Coupon Fannie Mae TBA	99.56	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.07

Stocks are flattish this morning ahead of the FOMC decision. Bonds and MBS are down small. 

The FOMC rate decision is scheduled for 2:00 pm EST today, so beware of volatility around that time. We will be getting a new set of economic projections and a new dot graph. Yellen will also hold a press conference afterward. What will investors focus on? the dot graph.

Mortgage Applications fell 5.5% last week. Purchases fell 4.2% while refis fell 6.9%. 

It is looking like there might not be a deal with Greece, as Tsipras said Greece was willing to live with the consequences of saying "no" to their creditors. Bloomberg provides this helpful graph of where we are in the tug-of-war between creditors and Greece: The ouzo is definitely running out of the glass at this point

"Sell in May and Go Away" meets "Don't fight the Fed." A record number of investors have told BOA / Merrill Lynch that they have bought downside protection in stocks ahead of rate hikes. FWIW, I am not sure that a 50 basis point or 75 basis point Fed Funds rate is going to do that much to pull back the economy, and I think the Fed is going to take it very, very slow. This is not a typical tightening, where the Fed is trying to cool off the economy. The last thing they want to do is choke off the recovery. Second, if (when) China's stock market bubble bursts, we could see a massive flight to quality (in other words, investors buying Treasuries) that would probably offset at least some of the effect of higher short term rates. 

Barclay's is exiting the US MBS market, following Royal Bank of Scotland's lead. They will still trade risk sharing bonds and might still trade agency paper, but they are out of the market making business in pre-crisis paper.