November 2, 2023 – Rate Commentary

• November 2, 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 6.5: 100.33 (+42bps)
10yr yield 4.66

Despite a handful of reprices worse when bonds lost a bit of ground mid day, it ultimately is a good day for bonds. Tomorrow morning comes the jobs data that could shake things up though, consider locking risk adverse, but we could see rates improve further if markets like what the job data brings tomorrow, so consider floating loans that aren’t closing for 15+ days out.

Rate sheets should be the best we’ve seen in over a month today, as momentum continues in our favor. Reprice risk on the day is low, although we have to wonder how long we can ride this wave. I told you a few days ago that we were going to see big moves whichever way the sentiment shifted… thankfully sentiment is in our favor as markets are now doubling down on bets that the Fed is done raising rates. Tomorrow we get non farm payrolls, wage data, and unemployment… any sign of weakening could push this rally a bit farther. However, there IS risk, and we could see bonds pull back. Time to decide what to lock and what to keep floating… so keep reading.

Yesterday’s Fed meeting and Fed Chair Jerome Powell’s press conference couldn’t have played out any better for us. Bonds started the day off rallying and peaked around 10:30am ET as most lenders were setting pricing before leveling off till the Fed meeting at 2pm ET. We saw no movement at all when the Fed kept its rate the same and issued its policy statement, something that almost never happens. There was almost no change in the policy statement the Fed issued from its previous meeting, and it looked like markets were happy to just wait to hear what Powell had to say.

Bonds started to rally a few minutes into Powell’s prepared remarks, and just kept going as he answered questions. Powell hinted that the Fed may be finished with the most aggressive tightening cycle in four decades, and markets are starting to look forward and speculate when the Fed will be forced to start cutting. Right now markets are pricing in June as the most likely time to see a Fed rate cut, but we won’t have to wait that long for mortgage rates to improve. As speculation grows on future cuts, bonds will react and we will see rates improve. Don’t look for this to happen before the end of the year, but it is possible we could see at least some further rate improvement from here.
 

We need to be careful, and to realize that this trend of improvement is not going to last forever… and may not even last into next week.

For loans closing in less than 15 days, consider taking some risk off the table and locking, but recognize that we will get jobs data tomorrow morning that could push rates even a bit lower. If we see bonds pull back from the strong start of the day, that would also push me towards locking these loans. So while we are cautiously floating, definitely assess the risk and decide what loans may want to take the money and run.

For loans closing in 15-30 days, cautiously float and consider floating from here. Friday’s jobs data could benefit rates a bit further, and we will get CPI inflation data on the 14th.

For loans closing in 30+ days, float. Even if we see rates move higher from here in the coming week, we don’t have to panic lock these loans unless we see a firm shift in sentiment. Although rates are not likely to continue to fall much further, we don’t know that we’ve hit the bottom yet.

Technicals:

The UMBS 6.5 coupon is at 100.42, this is almost +100bps from when yesterday’s commentary came out, and is +52bps on the day. Are we seeing bonds peak? Will the 50-day moving average of 100.31 prove to be a solid resistance level and will mortgage bonds end the day there today?

The 10yr Treasury yield at 4.65, a huge drop from yesterday’s 4.87 and we could fall to 4.55 (ish) before seeing if we are done.