August 2, 2023 – Rate Commentary

• August 2, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

Afternoon

WRAP UP
UMBS 5.5: 98.69 (-17bps)
10yr yield: 4.09

Although bonds are well off the worst levels of the day, nothing really points to potential for improvement. Rates still look poised to hit new highs for the year, and unless a surprisingly weak labor reading comes in on Friday we don’t have anything on the horizon to expect a reversal. Advice is to lock all loans, even at these inflated rates, because we could see worse.

Rates continue to creeping higher, and reprice risk on the day is moderate. All of the optimism that followed last month’s CPI inflation data, when mortgage bonds were reaching for the stars, has washed away. Instead we have to throw ourselves at the mercy of each new economic report, like this week’s jobs data and next week’s CPI inflation data. As forecasts of a coming recession fall to the wayside, it becomes less-and-less likely we will see rates move significantly lower from here. Risks favor locking, because the current outlook is that we could soon see the highest rates of the year.

Expectations of future Fed rate hikes haven’t changed (markets still only pricing in a small chance of a September or November hike), but mortgage rates continue to march higher. My point in bringing this up is that if the data DOES push market sentiment closer to pricing in a Fed rate hike in September or even November, it will push mortgage rates to new highs. If Friday’s jobs data includes wage data coming in hot, traders will be forced to pivot – at least partially – toward pricing in one more hike. And then, we’ll have to wait until next week when we get the CPI inflation reading, and hope that it helps spur a rebound. Volatility will continue as each new report of economic data takes on more importance to a Fed that is “data dependent” for future hikes.

For loans closing in less than 15 days, look to lock, but hold off and cautiously float till we see if we get any recovery to this weak open. Don’t hesitate to lock though if we see bonds worsen from here and reprice risk grows.

For loans closing in 15-30 days, consider locking. It is looking more and more like we are going to lose too much ground to hope the CPI inflation data pulls us out of the fire again. Risks favor locking at the moment.

For loans closing in 30+ days, consider locking if you can. It’s just too foggy to know where rates will be in a month, but rates look like they could hit the highest levels we’ve seen this year.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 98.64, -22bps and still losing ground.

The 10yr Treasury yield at 4.09, and looking likely to reach new highs for the year.