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UMBS 6.0 98.61 (-3bps)
10yr yield 4.62
Mortgage bonds recovered, limiting reprice damage. Still seeing rates creep away from best levels, and supporting the idea to lock for protection. We just can’t know what the CPI data will bring next week, forecasts be damned, and only loans willing to risk waking up to a jump in rates on Tuesday should float, but those willing to risk it could get paid off.
Rate sheets this morning likely a bit worse than yesterday, however better than the many reprices worse we got. Reprice risk on the day today is low, unless we saw some kind of crazy consumer sentiment number at 10am ET it should be a pretty quiet day.
Yesterday saw bonds surprisingly tank leading to lots of reprices worse when there was a poor reception to the 30-year Treasury auction (the 3yr and 10yr had gone much better this week) and was made worse when Fed Chair Jerome Powell warned that the Fed wouldn’t hesitate to raise rates some more if needed to slow inflation further. That caused markets to question the sentiment that the Fed can’t possibly raise rates anymore, and also put more pressure on next week’s inflation data to show cooling. If we don’t get a favorable CPI report next week, expect a quick and harsh reaction in bonds that will make Tuesday’s rate sheet much worse. Because of the risk, definitely want to lock up loans closing less than 15 days out and risk averse.
For loans closing in less than 15 days, lock. Unless a loan that is closing in the next two weeks has time to get the CPI data on 11/14, and the risk tolerance to float into it, might as well lock. If we get a favorable CPI report that bonds really like, we could improve, but if we see bonds lose ground and rates jump there isn’t time to see a recovery. Too much risk in my opinion still, so I’d lock here.
For loans closing in 15-30 days, cautiously float. We’ve seen rates tread water now for a few days and hold most of last week’s gains. Next week’s CPI data could help, as well as the Thanksgiving holiday, although the reality is that it isn’t likely we see rates drop much from here. Still, risk has cooled a bit and I’d now look at cautiously floating these loans.
For loans closing in 30+ days, cautiously float. These loans have the least to lose, because based on the current outlook we are likely to see rates hit these levels again even if they creep higher. It’s not a bad idea to lock them if you like the pricing, but for those that can’t lock or want to wait a bit there is less risk than loans closing near term.
Technicals:
The UMBS 6.0 coupon is at 98.78, and although +14bps on the day that is still quite a bit worse than this time yesterday.
The 10yr Treasury yield at 4.58, and we want to be keeping a close eye on the 50-day moving average of 4.59… if the 10yr can drop below that and hold (probably not unless we get favorable inflation data) then the door will open for better rate sheets.
