October 12, 2023 – Rate Commentary

• October 12, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

WRAP UP
UMBS 6.0: 97.94 (-67bps)
10yr yield 4.71

Bonds moved much worse today than I would have expected, especially with inflation data coming in as forecast with a decent core number. We can point to some sectors of inflation that could be partly to blame, however, it is more likely this is just normal movement. If you didn’t get to lock before reprices worse hit, see what tomorrow brings, could see some improvement.

Rate sheets are likely to continue to hold steady, as rates now finding a firm footing. Reprice risk on the day is low, bonds lost ground this morning when traders seemed to be disappointed that inflation wasn’t moving much lower, but after a brief sell off bonds recovered quite a bit. The outlook now is that rates have crested (for the moment) and will hold near these levels or improve slightly, but don’t expect big moves lower.

The conflict in Israel not driving much of a “flight to safety” for bonds, and therefore is not really a big factor in mortgage rates. That could change if things escalate and other countries get involved like Iran or Syria, or if the world starts to take a different view of Israel’s actions as more than warranted.

Inflation data came in this morning, coming in basically right were expected. We could go deep into all the components, but honestly I don’t think it matters much in the big picture. It gives us something to talk about, but the bottom line is “will they or won’t they” – will the Fed raise rates, hold rates, or eventually lower rates? Right now the way the data came in it leaves things status quo, with markets thinking that the Fed is likely done raising rates and only pricing in a small chance of a December meeting hike.

Loans closing in less than 15 days can still cautiously float, but may want to consider locking for protection and to just be done with it. There isn’t much happening over the next couple of weeks that is likely to drive rates lower, although we could see them fall enough to improve pricing for those willing to gamble. The moves are likely to be small either way.

Loans closing in 15-30 days can cautiously float, basically waiting to see what the Fed says at its meeting at the end of the month, and we could see rates improve a bit more then.

Loans closing in 30+ days should also cautiously float, there is little risk to these loans for floating and they can keep options open. That said, I still don’t think we will see rates fall much from here.

Technicals:

The UMBS 6.0 coupon is at 98.42, -19bps on the day and giving back some of yesterday’s gains, but still better than when I wrote yesterday’s commentary.

The 10yr Treasury yield at 4.61, ticking a bit higher after the inflation data came out.