November 9, 2023 – Rate Commentary

• November 9, 2023
• realestatelife

11/09/23 WRAP UP
UMBS 6.0 98.69 (-58bps)
10yr yield 4.63

Rates were hurt today because the 10yr bond auction went poorly, and Powell’s comments today that the Fed will move carefully but won’t hesitate to raise rates further to curb inflation. This could trigger rates to creep higher, so consider locking some loans, especially if haven’t seen a reprice worse yet. Those that have, we’ll have to wait and see what tomorrow brings.

Rate sheets this morning should be similar to yesterday as rates continue to tread water. Mortgage bonds are down on the day, giving back most of yesterday’s improvement before we could see it on the rate sheet. The good news though is that the 10yr has broken through some technical resistance, and if that holds it could open the door for a little bit more improvement for pricing. I’m not sure yet what I think will happen with next week’s inflation data, but I’m going to go ahead and lean into a cautiously floating stance for more loans now, although I still think it makes a lot of sense to lock near term and risk averse because there won’t be time to recover if next week’s inflation data disappoints markets.

I’m going to point out real quick that many of you are finding rates/pricing that are all over the place. I see some folks talking about how rate sheets have already given back a good portion of last week’s improvements (that’s not the case for all lenders, I assure you) while other folks share with me that they never saw rates fall that much to begin with. This is not a channel war comment… I can tell you I’ve seen it across different wholesale lenders, among brokers, and within the retail channel. This is just the reality of how different lenders handle big market swings, manage pipelines, and weather this storm. I try to take a high level view here in my commentary as well as on my live daily videos, giving you the “average” view.

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 99.06, a bit better than yesterday around this time although -20bps from where things ended the day yesterday.

The 10yr Treasury yield at 4.55, dropping yesterday and ending the day below the 50 day moving average and barely holding below it now (its 4.57 today).