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Sunday’s: 7AM K-EARTH 101 FM
10/17/23 4:47pm ETWRAP UP
UMBS 6.0: 97.11 (-58bps)
10yr yield 4.84
Bonds didn’t rebound today, which would have been a better sign. It’s still likely we see rates fall back a bit from here, however they could creep higher before that happens. I still think we are close to peak rates, but it wouldn’t be the first time I was wrong. Tomorrow is a crap shoot, but we are due for some pullback.
Rate sheets will be much, much worse this morning and rates will creep higher as bonds go on a huge selling spree. The only upside to today is that reprice risk is low, because it is unlikely we see more damage after this brutal morning. What was already starting as a bad day was made worse when retail sales data came in much higher than expected this morning, along with a big upward revision for August. Strong consumer spending supports economic growth, which means that the Fed may have to continue to step on the brakes and raise rates. We want to watch the 10yr yield and mortgage bonds today, because we are actually seeing a new level of “worst” for both of them, and we really want to keep our fingers crossed that they improve through the day. It’s too early to consider locking anything, it could prove to be a big mistake if/when we see things calm down and reverse.
The strong economic data this morning pushing the probability of a Fed rate hike in December up to about 40% (compared to about 30% yesterday) but not really increasing concern that the Fed will raise rates in a couple of weeks at the next meeting. We could see that reverse quickly if sentiment shifts once again, as we’ve seen many times lately.
Loans closing in less than 15 days should cautiously float to see how the day goes. This morning’s moves were extreme and honestly much more than I expected was even possible… bonds were already down to start the day enough to push rates up .125%, it only got worse from there. Now I’m forced to see if we really have hit the peak I talked about only a day ago, or if rates are going to keep climbing. I wouldn’t consider locking though until we get a clear sign that we won’t see a rebound later in the week and see pricing improve.
Loans closing in 15-30 days should still cautiously float, as scary as that sounds. This big jump in rates is ugly, but we are still likely to see markets improve heading to the Fed meeting in a couple of weeks. It could be a rough ride heading there, but we are still likely to see rates fall back some before the end of the month.
Loans closing in 30+ days should also cautiously float, despite the move higher in rates. There is still a lot of game to be played for these loans, and locking now could prove to be a really bad move. Chances are better we will see better rates again before these loans need to lock to close, although those rates may not be much better they will still be better.
Technicals:
The UMBS 6.0 coupon is at 97.11, -58bps on the day.
The 10yr Treasury yield at 4.83, a huge jump from yesterday’s 4.71 commentary.
