August 16, 2023 – Rate Commentary

• August 16, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

WRAP UP
UMBS 5.5: 97.71 (-20bps)
10yr yield: 4.26

Rates continue to levels not seen since the aughts, and there is no real reason to expect that to stop in the near future. Lots of reprices worse today as bonds lost ground through the afternoon, not to be blamed on the Fed mtg minutes (which were no surprise to anyone) but simply part of a larger trend. Risks favor locking all but the loans closing months away.

Pricing this morning likely a bit worse than yesterday, as rates continue to slowly creep higher. Reprice risk on the day is moderate, bonds could drift lower as the day goes on and lenders have been quick to reprice when they do. This afternoon we will get the Fed’s meeting minutes from the July meeting, but I don’t expect that to have much of an effect on anything just like the housing data we get today doesn’t affect rates. The outlook remains the same… rates are likely to settle in at these higher levels, without much of a reason to see them move lower until next month’s jobs and inflation data come along to possibly help. Even then though, it isn’t likely we see rates move that much lower from here.

So why won’t the Fed meeting minutes matter much this afternoon? Simple… markets already know that the minutes will show only a unanimous vote to raise the Fed rate in July and only a handful of officials favored holding rates steady through the rest of the year. The dot plot already told us that, showing that most of the Fed officials think we need to see one more hike this year to cap off the run. However, markets are pretty comfortable with the idea that the Fed is done hiking rates, and think instead that we will coast through the end of the year with data showing that soft landing. You couldn’t find a better ending to a fairy tale if you read this story next to Goldilocks and the Three Bears.

For loans closing in less than 15 days, cautiously float to start the day but look to lock. It is possible we see a bit of improvement from the most optimistic of lenders today, but it isn’t likely that most will reprice better. I don’t think we see much more than a ho-hum reaction to the Fed meeting minutes this afternoon, and there is no reason to expect more than a little bit of recovery in pricing to end the week. Rates may not move that much higher from here, but there is little benefit to floating, so the advice remains to lock and be done with it.

For loans closing in 15-30 days, the advice is also to go ahead and lock. With more than a couple of weeks before the next jobs report and almost a month till the next CPI inflation report, there’s little reason to expect enough improvement in rates to risk floating here. By the time some gains do come our way, we may see rates creep up high enough to make it a moot point.

For loans closing in 30+ days, cautiously float and look for a better hill to fight from. It may take a month, but we could see better pricing as the September Fed meeting gets nearer and the data supports a Fed rate hike pause.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 97.94, +3bps at the moment with mortgage bonds struggling to tread water this morning. I wouldn’t be surprised to see bonds take a breath after selling off over -130bps from last Thursday, but I’m not anywhere near convinced that we won’t see mortgage bonds hit the lowest level we’ve seen in years, even lower than last October.

The 10yr Treasury yield at 4.23, just below the 4.25 line in the sand. Is it possible we will see the 10yr yield hit the highest levels since 2007? It’s definitely a possibility…