August 17, 2023 – Rate Commentary

• August 17, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

WRAP UP
UMBS 5.5: 97.58 (-16bps)
10yr yield: 4.29

Bonds clawing back some gains after hitting the worst levels of the day and triggering some reprices worse, but nothing to be excited about. The outlook remains that we will see rates move higher, and the advice remains to lock.

Rate sheets will continue to lose ground this morning, and reprice risk on the day is once again moderate. Yesterday brought quite a few reprices worse, especially from wholesale lenders, as bonds continued to lose ground. The Fed meeting minutes didn’t really cause any additional weakness, there was nothing surprising in them. Bonds were already down quite a bit on the day when the minutes came out, and simply continued worse from there. We need to be very aware that right now we are in a trend of rising rates, and that it can still get worse (and likely will).

It’s not just here in the U.S. that we see bond yields rising… global government bond yields (basically other countries’ equivalent to Treasuries) have climbed to the highest level since 2011. Blame it on the extra supply (after the debt ceiling fiasco and with a ballooning federal deficit) or blame it on Mortgage rates can’t move lower as long as mortgage bonds are trading for less (meaning higher yields). We aren’t going to see Treasury yields and mortgage bond yields suddenly drop without some kind of catalyst… economic or labor market weakness, and that’s not likely anytime soon. One other thing that could end up being a big deal is consumer debt… and if consumers start to lose access to credit or begin drowning in the payments it will slow down the economy.

Markets are clinging onto the belief that the Fed is done raising rates… but if we see a shift towards believing another hike will come in November, that will also add pressure on mortgage rates to move higher.

For loans closing in less than 15 days, continue to lock. Until we see an end to this current trend, there is no reason to float these loans. Each day simply brings higher rates and worse pricing than the last, and there is no reason to expect this to end yet.

For loans closing in 15-30 days, the advice is also to go ahead and lock. With more than a couple of weeks before the next jobs report and almost a month till the next CPI inflation report, there’s little reason to expect enough improvement in rates to risk floating here. By the time some gains do come our way, we may see rates creep up high enough to make it a moot point.

For loans closing in 30+ days, consider locking. I’m becoming less and less hopeful that next month’s labor and inflation data will help bring rates down a bit, and am instead thinking even if that happens rates will have moved so much higher that we’ll be back to where we are now as a best case scenario. I’d strongly consider locking, but cautiously floating could still pay off.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 97.67, -6bps on the day.

The 10yr Treasury yield at 4.30.