August 28, 2023 – Rate & Market Commentary

• August 28, 2023
• realestate

WRAP UP
UMBS 6.0: 99.73 (+16bps)
10yr yield: 4.21
If repriced better today, consider taking it, otherwise todays gains give some protection to floating into tomorrow. Again, there is little reason to believe that rates will fall much from here, but any improvement we do see will come from weak labor data and could start with tomorrows JOLTS report.

Rate sheets this morning likely to be basically unchanged, maybe a bit better for some. Reprice risk on the day is moderate, although today is the quietest day when it comes to economic data. This is going to be a busy week, full of jobs reports that could either show a softening in the labor market or show that the labor market refuses to budge. It is unlikely that we see rates fall much this week, although there is a slim possibility. The outlook remains that without a surprise in the jobs data, rates will not move much lower than here, and we could see them move higher.

Friday’s speech by Fed Chair Jerome Powell… so much hype, so little substance. After talking about it more than a gossiping high schooler, there were really no surprises from Powell. Markets yawned, and we really didn’t see bonds move much at all. However, this morning Fed futures now pricing in a Fed rate hike in November being more likely than holding steady, although there is still not really a lot of expectation that we will see a hike in September.

For loans closing in less than 15 days, consider locking. Although there is a possibility that rates could improve if jobs data shows any softening to the labor market, loans closing in this window can’t risk seeing a move the other way.

For loans closing in 15-30 days, consider locking. Less of a sense of urgency than loans closing sooner, but these loans may consider that more CPI inflation data comes out September 13th and could help rates improve a little bit. Even still, it is unlikely rates move much lower than here even with some help, which is why locking could make sense.

For loans closing in 30+ days, there is the least sense of urgency but I’d still consider locking. Rates could still creep higher if markets anticipate the Fed will hold these rates longer or even be forced to continue raising.

Technicals:

The UMBS 6.0 coupon is at 99.55, -3bps on the day.

The 10yr Treasury yield at 4.22.

MBS OVERVIEW

Three Things: These are the three areas that have the greatest ability to impact your backend pricing this week. 1) Inflation Nation, 2) Jobs, Jobs, Jobs and 3) Rosie the Riveter.

1) Inflation Nation: After Powell said on Friday that the Fed would not move their target rate from 2% and that they would keep pressing until inflation actually hit that goal, this week’s inflation related data will be very important. On Thursday we will get the Fed’s key measure of inflation, Core PCE. It is expected to increase YOY from 4.1% to 4.2% which of course is still double their target rate.

2) Jobs, Jobs, Jobs: We get Big Jobs Friday this week ahead of the long holiday weekend. Throughout the week we have a ton of job and wage related data points including: JOLTS, ADP, Initial Weekly Jobless Claims, Challenger Job Cuts, Non Farm Payrolls, Unemployment Rate, Average Hourly Earnings and more.

3) Rosie the Riveter: We get some very big name manufacturing reports this week with both Chicago PMI and ISM Manufacturing PMI. We will focus on the internals for employment and prices paid.

Treasury Dump: Here is this week’s Treasury auction schedule:

08/28 2 YEAR and 5 YEAR Notes

08/29 7 YEAR note