September 7, 2023 – Rate Commentary

• September 7, 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: 99.91 (+33bps)
10yr yield: 4.25

Good day for bonds. If repriced better, consider taking it, otherwise you may want to consider floating into tomorrow to see if pricing is better and reflects the gains. This doesn’t really change the mid term outlook, but at least it’s a good day. Nothing on the calendar tomorrow to give us any hints what to expect, so it’s likely we see some giveback of todays gains.

Rate sheets today likely to open similar to yesterday as bonds tread water, and reprice risk on the day is low. After losing ground for almost a week, bonds are starting to show signs of bottoming out for the moment. Rates are likely to creep a bit higher still before next week’s CPI inflation data comes out on Wednesday, but aren’t likely to make any real big moves ahead of that. Bonds lost ground yesterday after I wrote the commentary, and morning pricing came out much worse than I was expecting due to that. Bonds took a bath due to the strong ISM services data, which basically showed the economy is not really slowing down. The outlook remains the same… these rates are here to stay for awhile, at least through the end of the year. Home prices ain’t comin’ down much either, not with inventory still tighter than a frogs butthole. Yup, there’s an image for ya.

Next week’s inflation data comes a week before the next Fed meeting, where markets are still betting on a Fed rate hike pause before another hike comes in November at the following meeting. Rates are not likely to fall until talk picks up for the Fed to start CUTTING rates, and that isn’t likely to happen until the second half of 2024. Markets are betting it could start earlier, but markets have been overly optimistic about Fed moves this entire cycle and I think we will see a similar scenario as we head into 2024.

Loans closing in less than 15 days should lock. While it is entirely possible that next week’s inflation data could help bonds with a bit of a mini rally that brings rates back down to last week’s best levels, it’s too much of a gamble in my opinion.

Loans closing in 15-30 days should lock because unless the CPI inflation data blows markets out of the water and really wows us, it isn’t likely to bring rates back down.

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 within this window… 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 99.56, -2bps on the day but down quite a bit from when I wrote yesterday’s commentary. Mortgage bonds could be near finding a bottom for now though, which would stop the rate increases we’ve seen this week, at least until next week’s inflation data.

The 10yr Treasury yield at 4.28, creeping higher but not yet capping out at the 4.34 ceiling that is in play.