August 3, 2023 – Rate Commentary

• August 3, 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: 98.28 (-41bps)
10yr yield: 4.18

Tomorrow brings jobs data at 8:30am ET, before rate sheets. Data showing a softening labor market would help bonds improve, but rates don’t have much room to go lower. If the data is not well received by markets, bonds are going to sell off to new terrible levels tomorrow and we’ll see the highest rates of the year. I think it is silly to risk it, I’d be locking everything.

Morning

Rates continuing the rise to the highest rates of the year, and reprice risk today is moderate. We could see bonds take a breath after big moves overnight and this morning, but we could also see the losses snowball and trigger more selling. There is a small chance that tomorrow’s jobs data could help stem the bleeding, but we’re talking REAL small. More likely any strength will add on to the selling, and we see rates move higher. Rates will fall again some time over the next few weeks, but we can’t count on when or how much. Locking for protection now sucks, but still a good move.

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. Yesterday when bonds recovered a bit in the afternoon we didn’t see much in the way of improved pricing from lenders, I wouldn’t hold out hope that we get any reprices better today either.

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 98.31, -38bps and getting uglier.

The 10yr Treasury yield at 4.17, fulfilling my forecast of hitting new highs for the year, and it doesn’t look like it’s ready to end.