August 9, 2023 – Rate Commentary

• August 9, 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: 99.08 (+11bps)
10yr yield: 4.01
CPI data at 8:30am ET tomorrow. Markets expect higher number than June, so unless MUCH higher I don’t think way we will see too much of a negative response but there is definitely a possibility. If shelter costs and core CPI show more improvement than expected we could see a good day for rates. There is risk floating into tomorrow, lock accordingly for protection.

Rates sheets this morning likely to be similar to yesterday. Reprice risk on the day is moderate, we want to stay alert around 1pm Eastern when the 10yr Treasury auction comes out. If the auction has weak demand, we could see bonds lose some ground and put lenders in a position to reprice worse. Other than that, I think we will see bonds improve a bit through the day but not enough to see lenders issue improved rate sheets.

The real focus today is on tomorrow… tomorrow’s CPI inflation data which comes out at 8:30am Eastern, ahead of the day’s rate sheets. There is some speculation that this report won’t be as rosy as the last one, due to some of the numbers it is getting compared to from this time last year. However, unless the client is totally risk averse or it would blow up your deal to see rates jump tomorrow, I’d float. There is some risk, but here’s my thinking…

Traders, economists, the media, and even my wife’s nail girl know that tomorrow’s data may have a soft spot in it (ok, I don’t know about the nail girl). Markets have shifted to a clear “smooth sailing” sentiment and think that the Fed is done raising rates. I don’t think that tomorrow’s inflation outlook will rattle that cage, and in fact (shhhhhh, come close I can’t say this too loud) I think we will get a decently positive reaction tomorrow to the inflation data even if it isn’t all that great. Now, I’m about as accurate as the magic 8 ball was in middle school, but… well, we’ll have to see tomorrow, won’t we?

OK, let’s say I AM off… what then? Well, tomorrow would be a bad day, rates jump a bit, and then fall again next week. Traders know that there will be a whole new slate of data ahead of September’s Fed meeting, and will look for another reason to put on the rose colored glasses. It won’t be good, but it won’t be the worst thing in the world for that long.

For all loans, cautiously float. There is risk to floating into tomorrow, so if it is going to ruin someone’s loan to see rates jump, lock it. Otherwise, I think despite the forecast that the data won’t be all that great, we will see rates do just fine. A surprise improvement would definitely bring a rate rally, so keep your fingers crossed.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 99.03, +6bps on the day.

The 10yr Treasury yield at 4.00.