October 20, 2023 – Rate Commentary

• October 20, 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: 96.66 (+16bps)
10yr yield 4.92

Was nice to catch a break for a day, but floating into Monday hoping it continues is very risky. Next week doesn’t bring a lot of data other than Friday’s PCE inflation data. Still, markets are 100% convinced the Fed will NOT hike at the next meeting, so it’s not likely to be too big of a market mover. Even if we see improvement next week, it will be small.

Rate sheets finally getting a positive boost today, although it is a small one. Reprice risk on the day is low, whether today’s gains for bonds are just a pause after losing -200bps in a week or due to a move to safety over the weekend by global traders due to the Israel/Gaza war, bonds should hold the gains. That said, the outlook is still that rates will move higher, and we aren’t going to see them drop anytime soon. Floating into Monday comes with a lot of risk, we could see rates jump again. However, if something ugly does happen in the Middle East and things escalate further (let’s hope it doesn’t), we could see bonds benefit.

Yesterday was a big day of Fed speaking, capped by Fed Chair Jerome Powell. Powell basically said the economy’s strength could require more Fed tightening, but that rising rates that we’ve seen in the last week may do some of the Fed’s job for them. Markets now almost 100% sure that the Fed will keep rates unchanged at the meeting at the end of the month, and chances of a December hike are also dropping. What is bad for rates though is that Powell has added his voice to the other Fed members who are all beating the drum, “higher for longer”… basically pointing out that we aren’t going to see rates drop significantly in 2024 unless the economy tanks or the labor market implodes.

Loans closing in less than 15 days should consider taking today’s rates and locking. There is a lot of risk floating into Monday.

Loans closing in 15-30 days should consider locking, as rates look ready to move worse rather than improve.

Loans closing in 30+ days should also consider locking, despite the move higher in rates.

Technicals:

The UMBS 6.0 coupon is at 96.78. +28bps on the day. Still a small drop in the bucket.

The 10yr Treasury yield at 4.93, not yet hitting 5, although I do think it’s around the corner.