July 28, 2023 – Rate Commentary

• July 28, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

07/28/23 4:30pm ET

WRAP UP
UMBS 5.5: 99.30 (+38bps)
10yr yield: 3.96

After a rough ride, mtg bonds about the same levels we ended with on Tuesday. I told you not to panic yesterday, although we won’t yet see the full recovery on most rate sheets unless we get a positive start Monday, bonds have recovered a lot of yesterdays losses. We need to be careful though, signs still point to rates that can creep higher unless data helps bring them down.

Yesterday, after I wrote the commentary rates took a beating, as selling in bonds led to more selling. However, the outlook really wasn’t that different, at least not according to Fed futures, which reflected almost the same expectations of where the Fed would have rates through the end of the year as they did after the meeting. As I said in our end of day text alert yesterday, “Markets still expecting a rate hike by the end of the year at the same level as yesterday, giving hope that we could see bonds rebound. Rates are going to be much worse tomorrow than today but next week could see a recovery.”

Bonds started that recovery today, although mortgage bonds are not doing nearly as well as they were a bit earlier. Rate sheets this morning will be better than the many reprices worse yesterday, but worse than most yesterday AM rate sheets. Lenders are always slower to give back the gains, especially if not one of the quick-trigger wholesale lenders (the ones who reprice worse quickly, but also pass along the gains quickly. It’s a Friday, so most rate sheets are going to be on the conservative side as well. Reprice risk on the day is moderate, most traders will be taking the afternoon off but sometimes the lower trading volumes exaggerate the movement and make it more choppy.

Although no LO likes seeing rates move, we’re still right in the range and don’t need to panic (yet). On average, we’re looking at a range of base con/con rates of 6.75-7.25 (before LLPAs, etc). That isn’t likely to change much UNLESS we see market sentiment shift towards more Fed rate hikes, and that could come with strong jobs data next week or if inflation doesn’t drop as much as expected later in August. It is also important to realize though that we are not likely to see rates move much lower from here, and only are looking to capture the best pricing in the range. The only shot we have at seeing rates really drop is if we see true signs of a weakening economy and labor market, and although there are small things to point to here and there the reality is both are healthy right now. The idea that we will see a recession, which we are supposed to be knee-deep in by now, is just lip service. No matter what some inverted yield curve calls for, the reality is that people are out spending money and living life, despite higher costs and higher rates. As long as that is happening, we aren’t going to see rates fall.

For loans closing in less than 15 days, cautiously float. If you locked yesterday before the reprices worse, fantastic. If not, see how the day goes today… and if willing to gamble and if the gains hold up, float into next week. However, next Friday brings jobs data, which isn’t likely to help bonds much. So for these loans, there may be a sweet spot to lock in the middle of next week, with better pricing than today if we can catch a break. This is not guaranteed though, and if bonds see the today’s gains slip away you may have to make the hard call of locking for protection before it gets worse.

For loans closing in 15-30 days, cautiously float. Same as above, pick your spot and take your shot… but consider that we have jobs data August 4th, and CPI data August 10th that could see rates improve. Floating depends on the borrower’s risk tolerance.

For loans closing in 30+ days, cautiously float. It’s just too foggy to know where rates will be in a month, but rates are near the top of the range, and as long as we don’t see a lot of risk of higher rates it makes sense to float and see how some of this data plays out over the next few weeks.

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 99.09, +17bps but that doesn’t sound so great when you realize we were up as much as +33bps at one point. Still, recovering some of yesterday’s losses is a start.

The 10yr Treasury yield at 3.98, continuing higher although still better than where it ended the day yesterday back above 4.