October 31, 2023 – Rate Commentary

• October 31, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

10/31/23 4:47pm ET

WRAP UP
UMBS 6.5: 99.28 (+2bps)
10yr yield 4.93

Calm before the storm, tomorrow is a full week’s worth of action packed into a single day. JOLTS, ADP, Treasury numbers, ISM and THEN the Fed mtg and press conference. Today is the day to lock it if afraid of risk – tomorrow could go either way, only guarantee is that we will see big moves during the day. So either lock in or strap in and hold on!

Rate sheets this morning should be better than yesterday, although nothing drastic, generally more in line with Friday’s pricing. Reprice risk on the day is moderate, it is possible we see bonds lose enough ground that the more sensitive lenders could reprice, but we shouldn’t see any big sell offs. Tomorrow is going to be the day for fireworks, with lots of early jobs data (JOLTS, ADP), the Treasury quarterly refunding announcement (but this is a lot less of a concern than yesterday, see below) and of course… the Fed policy statement and Powell’s press conference.

Yesterday mortgage bonds recovered nicely from a really weak start, helped in part with an announcement by the Treasury that it expects to borrow $776 billion in the fourth quarter, a mere bag of shells and about $76 billion less than it had forecast in July. The refunding announcement that is coming out tomorrow should reflect this update, so it is a lot less of a concern than it was yesterday because markets now expect better numbers. One of the reasons we’ve seen bond yields rise, which has helped drive up mortgage rates, has been traders’ concerns about the amount of Treasury debt that is flooding the market.

You know how they tell you that your car loses 10% its value when you drive it off the lot? That’s nothing compared to what has happened to X (formerly Twitter) since Elon Musk bought it a year ago. Apparently X is worth less than half of what Musk paid for it a year ago. Ouch. Nothing to do with mortgage rates, just an interesting tidbit for the day about how all of the ridiculous big money stuff is made up like Monopoly and us common folk can’t really wrap our head around it, LOL.

All loans should start the day cautiously floating, but once again assess risk heading into tomorrow. It remains very risky to float through the rest of this week, and won’t be for the faint hearted. However, we simply can’t know where sentiment will take us until we see the reaction. Normally I will tell you where we are headed, and I’m right a lot more often than I’m wrong. However, right now I’m telling you that all the “normal” rules and indicators mean nothing, and we are going to get caught up in the wave… whichever direction it takes us. If we see sentiment unwind and yields fall, we could see rates improve .as much as 250 to .375 from here. However, if things go the other way, and we see the top blow off the 10yr yield and it shoots over 5%, we will see rates jump that much instead.

Technicals:

The UMBS 6.5 coupon is at 99.39, about +13bps on the day although it appears mortgage bonds are struggling to hold the gains and are well off the best levels of the morning.

The 10yr Treasury yield at 4.86, down a bit from yesterday.