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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
UMBS 6.0 101.45 (+66 bps)
10yr yield 4.02
Despite labor market and inflation data, the Fed gave its clearest signal yet that it is done hiking rates, with Powell saying as much (but still leaving himself an out). Markets now pricing in 65% chance of cut in March, helping rates improve. Tough to expect more improvement from here, cautiously float to see what tomorrow brings but lock any loans that can’t handle risk.
Rate sheets this morning should be slightly better than yesterday, and reprice risk on the day today is HIGH. The jobs data and inflation numbers were a disappointment to markets, which sets up today’s Fed meeting to also be disappointing. I highly doubt that we will see a clear path to better rates when the dust settles today, and instead think we are more likely to see rates in a position to creep slightly higher after falling over the last few weeks. However, since the meeting and press conference come this afternoon, it makes sense to keep our options open until we see exactly how things play out. That said, I’d be ready to lock and quick to pull the trigger today, locking everything that closes in the next 30 days or so.
The Fed is almost certain to leave rates unchanged today for the third straight meeting, and I expect we will hear Fed Chair Jerome Powell and the rest of the Fed push back against the ramped-up bets that cuts will come as soon as March. Yesterday’s inflation report poured water on the overheated expectations from traders that the Fed would go from “higher for longer” to “lower and sooner”.
While the dot plot that comes out today is likely to show the Fed is done raising rates, it is unlikely to show the same eagerness to cut rates in 2024 that markets have. Powell is sure to be peppered with questions at his press conference about when the Fed will cut rates and what it would take to start, and it is also a sure thing to bet that Powell will stick to the script that it is too early to speculate when the Fed will start reducing rates.
Loans closing in less than 15 days should cautiously float, with close attention this afternoon and a readiness to lock. I wouldn’t hesitate to lock any loan here if we don’t see an unexpectedly positive response in bonds to Powell’s comments today.
Loans closing in 15-30 days should cautiously float, and be ready to lock this afternoon. Again, unless we see an unexpectedly positive response from bonds this afternoon, I would lock these loans. It is unlikely we see rates move much lower by the end of December, and would then be looking at jobs data January 5th for the next big report followed by the next CPI reading on Thursday, January 11th. That’s when we will once again play the same game we did this past week, hoping for labor market softening and lower inflation to setup a possible rate hike in March.
Loans closing in 30+ days should cautiously float. These loans don’t need to worry about locking yet, because even if rates move higher today they will likely fall again within the next month.
Technicals:
The UMBS 6.0 coupon is at 100.84.
The 10yr Treasury yield at 4.17.
