August 30, 2023 – Rate Commentary

• August 30, 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 6.0: 100.11 (-8bps)
10yr yield: 4.12

Bonds losing steam in the late afternoon, could see some late day lender reprices worse. Never a bad idea to consider locking risk averse and near term, unless planning on floating into Friday’s jobs data to see what that brings. I’m no clairvoyant, all I can tell you is that if markets like the jobs data we could see rates drop a bit more, BUT THERE IS RISK. Lock accordingly.

Rate sheets this morning likely to be better than yesterday’s AM rate sheets. Bonds started the day off giving back some of yesterday’s gains, but have recovered and moved into positive territory. Yesterday’s JOLTS data showed less job openings than expected, pointing to a softening labor market, and bonds rallied STRONG on the news… much stronger than was really warranted, showing a clear shift in sentiment for bonds, with the 10yr Treasury yield dropping and mortgage backed securities making gains. The positive movement isn’t likely to last too long, and we could see rates jump significantly at the first sign of trouble. However, the door is open for rates to improve further now that we are seeing a strong reaction to any data showing a slowing labor market. There is a lot of risk to floating into Friday’s jobs data, but it could pay off and we could see con/con rates fall below a base rate of 7% for the first time in over a month.

I haven’t even mentioned tomorrow’s PCE inflation data before now, because it really has become just a rerun of the CPI report that comes earlier in the month. However, with the momentum moving in the direction we’ve seen this week, we could see a positive reaction to the data and it could help this little rally continue.

For loans closing in less than 15 days, cautiously float if you have any floaters left, and decide with the client if the loan is going to float into Friday’s risky data. If the reaction to the labor data is good, we could see rates move to the lowest levels we’ve seen in a month. However, there is quite a bit of risk, because a negative reaction will quickly push rates higher ahead of the holiday weekend.

For loans closing in 15-30 days, cautiously float. Now that we’ve seen a strong shift in sentiment, the potential to see rates move lower has increased. Loans with more than a couple of weeks will get to see if the jobs data helps, and can look towards the next CPI inflation report that comes out 9/13.

For loans closing in 30+ days, cautiously float. Loans with time have less risk to floating now, with markets pricing in a November Fed rate hike and rates finding a bit of a lower neutral level.

Technicals:

The UMBS 6.0 coupon is at 100.23, +5bps on the morning and recovering from a weak open caused by a reaction to overseas inflation readings coming in hotter than expected. 

The 10yr Treasury yield at 4.10, quite a bit better than yesterday. Technical resistance hits around 4.0, so we could see bonds move even a bit more from here.