October 30, 2023 – Rate Commentary

• October 30, 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 6.5: 99.28 (-3bps)
10yr yield 4.89

Lots of risk to floating, but rates are at a crossroads this week and if we see strong positive sentiment we have our best shot at seeing rates move lower. However, if the 10yr breaks above 5 with all the labor and econ data and the Fed meeting, rates will move higher and stay there for awhile. Only float if loan is willing to gamble, but those willing to gamble may benefit.

Unless we see more recovery for mortgage bonds this morning after I write this, rate sheets will be worse than Friday. Mortgage bonds are starting off the day with losses due to overnight trading, but there is a good chance that we see some more recovery as domestic trading takes over. The 10yr Treasury yield ended Friday at 4.83, and it looked like we wouldn’t have much to worry about heading into this week. However, it has jumped to 4.91 this morning, an unwelcome sight. Reprice risk on the day is low, it is more likely we see recovery than further losses.

This is a busy week for rates, with three events that are likely to have the biggest effect. On Wednesday afternoon we will get the Fed meeting, which will conclude with a policy statement and the bigger event of Fed Chair Jerome Powell’s press conference. Earlier on Wednesday we will get the Treasury Department’s quarterly refunding announcement, normally not something that gets much attention but is expected to this time around. The announcement will show just how much the Treasury will ramp up sales to fund our debt addiction over the next three months. Then after the dust settles, we will get all the jobs data on Friday.

Although the above are the three biggest events, we will also see the consumer confidence reading and PMI on Tuesday, JOLTS and ADP data on Wednesday, jobless claims on Thursday, and ISM non-manufacturing data on Friday. There is also action outside of our shores, with central bank meetings in the UK and Japan. All of these are likely to play some kind of role in pricing.

Can any or all of these readings and reports see rates improve much from here? No, not really. Rates are likely to fluctuate between the high 7’s and mid 8’s for base con/con rates, before factoring in LLPAs. Rates will move higher if/when the 10yr Treasury pushes above 5%, a line in the sand that has held for us a couple of times already. 

Loans closing in less than 15 days should start the day cautiously floating, but then decide if willing to risk floating through this very full week. There is a shot that we could see rates improve by the end of the week, but it will be a bumpy ride. 

Loans closing in 15-30 days should cautiously float, and like above should assess risk tolerance

Loans closing in 30+ days should cautiously float. These loans could benefit the most from floating.

Technicals:

The UMBS 6.5 coupon is at 99.19, recovering well from much bigger losses in overnight trading.

The 10yr Treasury yield at 4.89, and could move lower on the day.