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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
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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, despite the gains bonds made through the day on Wednesday, losing ground this morning to a cry of “Godzilla!!!” as Japan unleashed a different monster that stomped on bonds. Not anything to get worked up about though, just that the yen surged as speculation grew that the Bank of Japan will soon tighten policy and scrap the world’s last negative interest-rate regime. A lot of jargon that really doesn’t mean much to us other than a small setback to rate sheets for the morning.
Reprice risk on the day is low, today’s labor data was unemployment claims which came in right around expectations at 220k vs the 222k projected (although continued claims came in lower than expected). That’s it for the day, now we’re likely to see bonds drift a bit and improve on the day ahead of tomorrow’s jobs data.
Tomorrow is the big day, bringing the jobs data that markets are betting will show some softening in the labor market. The jobs data is important because if the labor market is cooling, it will contribute to the Fed cutting policy rates sooner. Last month’s data sparked a big improvement in rates, and tomorrow’s could do the same. Although there is always the chance that a strong report scares markets and pushes rates up a bit, that is a low probability at the moment.
Loans closing in less than 15 days should float. Unless the loan is closing in the next couple of weeks and is risk averse (high DTI, a skittish borrower who wants to take what’s on the table, etc) we want to float into tomorrow’s jobs data. The potential for seeing rates move strongly lower is high enough to take the risk that the report could come in the other way. Plus, even loans closing in the next couple of weeks, want to consider floating into next week’s inflation data and Fed meeting… but let’s make it through tomorrow morning first and then discuss that.
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 -14bps on the day that’s exactly what we saw yesterday around this time.
The 10yr Treasury yield at 4.14, and although that is a bit higher than the 4.11 it ended at yesterday it is also what we started the day with on yesterday’s commentary. If tomorrow’s jobs data comes in favorably, I think we could see the 10yr yield drop as far as 4.02 where it will hit the 200-day moving average as a resistance level. Depending on how tomorrow plays out, there is the possibility we may see a 3.XX yield next week after the Fed meeting.
