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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Rate sheets may lose little bit of ground from yesterday, but shouldn’t be too far off. Unfortunately there wasn’t a stronger reaction to this morning’s PCE inflation data, which came in right at expectations. Reprice risk on the day is low, bonds lost a bit of ground in overnight trading but could make it up during the day. The outlook remains good for rates though, as the narrative continues to be that the Fed is done hiking rates and inflation is slowing. The outlook is likely to improve with next week’s data and the following week’s Fed meeting, bringing rates lower, although we may see rates creep back up a little bit from here first (but not much).
The personal consumption expenditure data came out this morning, here’s what it looked like…
From Bloomberg:
“Inflation-adjusted personal spending rose 0.2% last month after a downwardly revised 0.3% advance in September. The core personal consumption expenditures price index, which strips out the volatile food and energy components, rose 0.2% last month. From a year ago, the Fed’s preferred gauge of underlying inflation advanced 3.5%.”
Today brings nothing else of merit to watch, but tomorrow brings some early data that markets will watch (ISM manufacturing data mainly). Yesterday saw two out of three Fed speakers make a case that the Fed is done raising rates for now (and one of them, Cleveland Fed President Loretta Mester has been among the more hawkish of Fed members calling for higher rates this year). Bostic was the other one, with Richmond Fed chief Thomas Barkin being the holdout who said he isn’t yet convinced. Non of them are actually voting members at next week’s FOMC meeting though.
Keep floating all but the most risk averse loans. Today’s slight weakness in bonds is part of the normal ebb and flow and shouldn’t cause alarm. It is now evident that the Fed is done raising rates, and markets have turned to speculating when rate cuts will begin. Unless something catastrophic were to happen to swing market sentiment around 180-degrees, rates should move lower heading into 2024. December should be good for rates.
Technicals:
The UMBS 6.0 coupon is at 100.36, almost the same as when the commentary came out yesterday but down about -17bps from yesterday’s end of day levels. That puts mortgage bonds right at the 200-day moving level, which arguably could act as support or resistance if we want to put more emphasis on the technicals. At this point it is a support level, but since it was only pierced yesterday for a single day, arguably we could look at it as a resistance level that is waiting for confirmation of being broken. But really, it won’t matter for long because next week’s fundamentals – the deluge of jobs data – will hold more weight than the technicals.
The 10yr Treasury yield at 4.32, about the same as yesterday when the commentary came out, but higher than the 4.26 it ended the day at yesterday.
