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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Rate sheets this morning likely to be similar to yesterday, which is to say some of the best pricing we’ve seen in months. However, we could see rates improve further over the coming days, as global markets bet on central banks cutting rates sooner than was expected a few months ago. Reprice risk on the day is low, the only economic data this morning was the ADP private payroll data at 8:30am ET that came in showing fewer jobs were created in the private sector than expected (NOT to be confused with Friday’s non farm payroll report from the BLS!). There are no Fed speakers during the blackout ahead of next week’s meeting, and it is likely that bonds will continue to slowly improve through the day or hold steady at worst.
Rates have improved a lot over the past few weeks, as expectations about the Fed’s “higher for longer” scenario have shifted to a “lower more quickly” according to markets. The Fed hasn’t signaled this is the case, but the economic data and labor market data have. Markets are now betting that with inflation continuing to move lower and a cooling economy with a softening labor market, the Fed will be forced to start cutting rates as soon as March. Currently, markets are pricing in over a 60% probability of a rate hike to come in March. If Friday’s jobs data combines with next week’s inflation data to support that outlook, mortgage rates will move lower (how much room we have to move lower though is questionable). The Fed meeting next week with Powell’s press conference is the last piece of the puzzle, and if markets take away a dovish tone from the Fed, we will see rates in the 6’s once again.
Seeing rates move lower is great… but this isn’t going to last forever. In fact, some folks think that markets are overreacting, and are too optimistic about coming rate cuts. However, even if we do see some pullback, the worst in rates is clearly behind us unless we see a major shift that shows inflation is heating back up again.
Loans closing in less than 15 days should float. We continue to see rates slowly creep lower and pricing improve, and there is no reason to lock. Friday’s jobs data is a chance to see rates take a bigger step lower, and could be the catalyst to push rates back into the 6’s. Although there is a chance that a stronger than expected labor report could push rates back a bit, it is unlikely we see that happen.
Loans closing in 15-30 days should float. Unless or until we see signs that markets feel this rally is overdone, we want to float. The reaction to this week’s labor data and next week’s inflation and Fed meeting will let us know just where we stand. After the next week or so, we may consider locking if it seems like we’ve wrung most of the benefits out of this rally… but there is still a lot of potential fuel to this fire my friends, and I wouldn’t want to miss it.
Loans closing in 30+ days should float. We have finally crested the mountain, and are starting to descend the other side. Time will only help rates at this point, so no reason to rush into locking. There will be times when rates move back up a bit before falling, but it is more likely we see rates creep slowly lower than move higher over time.
Technicals:
The UMBS 6.0 coupon is at 100.81, and although that is -2bps on the day it is still better than when the commentary came out yesterday. Depending on how this week finishes out, we may indeed switch to watching the 5.5 coupon again. That’s not really as big of a deal as some would think, the coupons all generally move in the same direction in similar amounts, but it is still a good sign of rates dropping.
The 10yr Treasury yield at 4.14, steadily improving from yesterday, and light years away from the 5.0 we hit back in October.
