September 25, 2023 – Rate Commentary

• September 25, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

Rates will continue to test the high water mark, and reprice risk today is low. The outlook is that rates will hold near the highs or even creep higher, with zero chance that we see a significant drop in rates anytime soon (“significant”, to me,  means .25% or more). Treasury yields continue to climb, and mortgage bonds look poised to move lower (which drives rates higher). Markets also not yet convinced the Fed will truly take rates higher and hold them there longer. When the markets actually start to accept this and price in this reality, we will see mortgage rates move higher. Although a true recession is likely to come at some point, it won’t be for quite a long time if it does. In the meantime, we aren’t likely to get any help from any data the rest of this month, and I don’t think October’s jobs data next week is going to be that much more helpful.

I’m in a locking bias on all loans, and I’m watching to see just how high it appears we may see mortgage rates move. Right now we are still flirting with the top end of the range… let’s call that 7.5% as a base rate (before any LLPAs), but I think we will see 7.75% before the week is over. Rates are more likely to be pushed higher than to be helped by all the variables at play… Fed speakers, oil prices, overseas bond markets, even the potential for a government shutdown which usually helps bonds and mortgage rates could actually hurt us this time around.

Technicals:

The UMBS 6.0 coupon is at 98.97, -38bps on the day and quite a bit worse than Friday. Mortgage bonds have tested the 98.80 level in the past and it has provided some technical support and bonds have always bounced higher in the same day. I think we will see bonds below this level though, maybe this week.

The 10yr Treasury yield at 4.53, and we want to watch to see if it falls back to close at or below 4.50. If not, hold onto your hat… cause it’s gonna get worse.