September 12, 2023 – Rate Commentary

• September 12, 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: 99.78 (-5bps)
10yr yield: 4.27

10yr auction a non event, as I expected. Tomorrow we get CPI inflation data, coming in ahead of AM rate sheets, and I still advise to lock most loans. It’s not just the data that matters, it is the REACTION to the data. Unless we get an amazingly better reading than expected, rates are not going to improve much… coming in at expectations won’t cut it. Why take the risk?

Rate sheets today should be about the same as yesterday as bonds hold the line. Reprice risk on the day is low, it looks like bonds have found a sweet spot to hold onto ahead of tomorrow morning’s inflation data. Let’s just call this the calm before the storm, and take the opportunity to lock up some loans ahead of what could be a day of bigger movement tomorrow. The only thing even happening today is a 10yr Treasury auction at 1pm ET, and that isn’t likely to cause any waves.

There are quite a few of you who may choose to float into tomorrow, hoping for a number that appeases the markets and helps rates improve. Me? Nah. I’m sitting here listening to Kenny Rogers sing “The Gambler”, musing over the concepts of risk versus reward and unecessary risk. You see, we get our hopes up every month when the CPI inflation data comes around… only to get let down. Even if this report shows inflation is moving lower, the sentiment in markets is that the Fed is still possibly going to raise rates one more time in November, and will hold them higher further into 2024. If the numbers fail to impress in the morning, especially the core numbers, we could see rates make a jump before morning rate sheets come out… and the only shot at seeing things improve from there would be the Fed’s meeting and press conference on 09/20 and I don’t feel great about that one.

For the record, when last month’s inflation data came out mortgage bonds ended the day down 40bps, and kept losing ground for almost two weeks straight, losing almost 200bps and watching rates jump almost a half point. Now that doesn’t mean we will see a similar situation tomorrow… but I have a sinking feeling we will. Maybe not as bad, but definitely not as good.

Loans closing in less than 15 days should strongly consider locking. Not sure why anyone in this window would still be floating, as we’ve seen rates creep higher after falling a little over a week ago. I don’t think that we are going to see any kind of big rally when the CPI data comes out, in fact I think it could push bonds lower and rates higher.

Loans closing in 15-30 days should consider locking. Loans in this window could arguably be helped with this week’s inflation data or next week’s Fed meeting… or could look back and wish they had locked now. There is just too much of a chance that it will be the second one… lock ’em.

Loans closing in 30+ days have the least urgency to lock (but should still lock), with both the CPI inflation data and the Fed meeting happening… and either (or both) could arguably end up being good for rates. But without clearly knowing where things will go from here, locking is probably a good call unless the loan is very risk tolerant and wants to gamble.

Technicals:

The UMBS 6.0 coupon is at 99.81, exactly where it was yesterday when I wrote this commentary. I told you we were seeing a snoozefest.

The 10yr Treasury yield at 4.28, and like mortgage bonds is exactly where it was yesterday.