August 11, 2023 – Rate Commentary

• August 11, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

Rate sheets are going to be much worse today than yesterday’s AM pricing, and worse than any reprices you saw yesterday as bonds continue to tank. Reprice risk on the day today is moderate, bonds are already taking big losses, but we could see another bout of snowball selling where bad turns to worse. Bonds are testing the worst levels we saw a couple of weeks ago, and it is tough to see them getting much worse from here without help from something. The losses we saw yesterday and this morning don’t have anything clear to point to for a cause… and that is why I expected to see a rebound this morning (but was wrong – no rebound yet). I still think bonds will recover, maybe a bit through today or maybe early next week, but I feel like locking here is like putting your seatbelt on after you crash into a tree…

A bit of a negative reaction for rates this morning to the slightly higher than expected wholesale inflation data. While not as important as the consumer data, it still caught markets’ attention when it came in slightly hot. The immediate reaction was that bonds lost ground, but I have a feeling we will see a recovery from that. The bad news is that would still leave us down on the day, just not down so much.

Cautiously float all loans, and don’t panic. Rates have risen, but are still in the range I’ve talked about before. It is more likely we see them settle back and bit then to continue higher from here, since all of the catalysts that would have caused that are behind us now (jobs data, inflation). The Fed futures still point to a pause in rate hikes in September with a possibility of a hike in November… and unless something changes there that markets expect the Fed to raise in September we shouldn’t see rates move too much higher than where they are at now. I’d cautiously float and wait for the ebb and flow to take effect and for rates to fall a bit.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 98.31, -31bps on the day and almost -100bps from yesterday after the CPI data when I wrote the commentary. That kind of move is WAYYYYY too much, especially when there is nothing firm to blame it on. We are very likely to see a bounce next week.

The 10yr Treasury yield at 4.14, versus the 3.99 we were at yesterday this time. Again – too much, too fast, for no reason.