December 5, 2023 – Rate Commentary

• December 5, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

UMBS 6.0 100.80 (+20bps)
10yr yield 4.17

Markets betting hard now that the Fed will cut rates by March, pushing yields lower and driving mortgage rates down as weaker JOLTS data today contributed to speculation that the labor market is cooling after running red hot the last couple of years. The big moves though still to come Friday, although tomorrow brings ADP report it’s a lesser market mover. Stay floating.

Rate sheets this morning should be better than yesterday’s, if – IF – the early gains I am seeing around 9am ET hold up. We get the JOLTS data and some ISM data at 10am ET, and if that comes in showing any kind of weakness then rate sheets will likely be even better. However, if the JOLTS data comes in showing more openings and a stronger jobs market then the early gains may disappear just as lenders are setting rate sheets. Make sense? Once pricing comes out though, reprice risk on the day is low and it is unlikely we see any major volatility in bonds.

Tomorrow brings the ADP data, which is less of a market mover than the rest of the jobs data coming out this week. It is unlikely we see any big moves in rates ahead of Friday’s payroll data, instead seeing smaller movements in pricing.

Some voices are starting to be heard saying November’s recovery for bond yields and rates may be too much too fast. There is already concern from some corners that markets have gone too far anticipating Fed rate cuts in 2024, which markets are now betting could happen as soon as March. If sentiment grows that cuts are imminent, mortgage rates have room to improve a bit further. However, if we start to get a snap back and markets second guess this rally, rates will creep back up a bit.

This week’s labor market data and next week’s inflation and Fed meeting will either give traders the green light that rates will need to come down, or will cause them to pause. Now we just have to wait and see how it all shakes out.

Loans closing in less than 15 days should float. I see quite a few LOs locking loans these days that may regret the move in a week or so. Rates have dropped about a point in the last six weeks, and about a half point in the last month. We haven’t seen a time in the last thirty days that rates have moved higher for more than a day or two before falling again. The current environment doesn’t hold a lot of risk… I’d float these loans and see what the rest of this week brings, and next week too if they have the time.

Loans closing in 15-30 days should float. Unless or until we see signs that markets feel this rally is overdone, we want to float. The reaction to this week’s labor data and next week’s inflation and Fed meeting will let us know just where we stand.

Loans closing in 30+ days should float. We have finally crested the mountain, and are starting to descend the other side. Time will only help rates at this point, so no reason to rush into locking.

Technicals:

The UMBS 6.0 coupon is at 100.70, +11bps on the morning and better than when pricing came out yesterday.

The 10yr Treasury yield at 4.21, falling once again.