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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Rate sheets will continue to see rates creep higher this morning, although reprice risk on the day is low. Yesterday was a brutal day for rates, pushing them to new limits and laughing at my statement that it looked like we had peaked. Although some of the underlying variables didn’t change, and even though the retail sales data came in strong, yesterday’s moves were unexpected and honestly uncalled for. That doesn’t really matter though, does it… markets are pushing yields higher and the reprieve we saw last week has proven to be very short lived. I’m not yet ready to throw in the towel and lock these rates yet, but there is no guarantee at this point that we will see them fall back as I expected. Even if we do, we’re talking a spoonful of dirt in the side of a mountain.
There is a lot of talk that it is a strong labor market and economy that will require more Fed tightening (rate hikes, holding higher for longer) that is driving up bond yields (and therefore mortgage rates). However, that doesn’t really pan out when you look at pricing on Fed futures. We haven’t really seen markets change much in regards to expecting no rate hike at this next meeting, around a 30-40% chance of a hike at the December meeting, and that the Fed rate will stay at least 5.25% until July of next year. The reason that I bring this up is that it makes it very difficult to understand where things are headed when none of the normal variables make sense. My biggest argument right now about why bond yields keep rising would have to be in the same camp as others who think markets are balking at the gross amount of U.S. debt, now over $33.5 trillion.
Loans closing in less than 15 days should cautiously float to see how the day goes, but I admit I’m getting ready to throw in the towel here. I continue to get hung up on the fact that we’ve seen mortgage bonds lose -170bps in a week… that is just ridiculous, and begs for a correction. However, no correction is guaranteed, especially with no economic data or anything other than geopolitical tensions that could point to improvement ahead of the Fed meeting in two weeks.
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. At least, that’s what I keep telling myself.
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 96.95, -20bps and capping off a week of losing ground daily. Mortgage bonds have lost about -170bps from last Wednesday, and rates have moved up .375 to .5% in that time.
The 10yr Treasury yield at 4.86, which is WAYY higher than a week ago when it was 4.56. Will the balloon pop?
