October 6, 2023 – Rate Commentary

• October 6, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

10/06/23 4:30pm ET

WRAP UP
UMBS 6.0: 97.63 (-33bps)
10yr yield: 4.80

Mortgage bond recovered quite a bit from worst levels, but the 10yr yield points to where rates will hold. Lots of reprices better, but I would risk floating into next week. Monday is Columbus Day, bond market closed, no text/email. There is risk to floating, but if it wasn’t locked yesterday then I would risk it and float into next week if it were me.

Rate sheets are going to get CRUSHED this morning due to a jobs number coming in almost double what was expected. Employers added 336,000 new jobs in September, compared to the 170,000 that were projected. Reprice risk today is high, although most lenders are going to price really really badly right off the bat to reflect a huge move worse in mortgage bonds. No reason to consider locking today, if you didn’t lock before this morning’s jobs data (as I have been warning to do for days) then it makes sense to see how the dust settles and wait for some kind of rebound, possibly next week when the CPI inflation data comes out. Rate sheets are going to be really bad today though, so definitely not wanting to lock in on them.

OK, let’s talk about the jobs data. The number of jobs created came in way higher than expected at that 336k mark, and last months number was also revised higher. Unemployment remained at 3.8%, not falling to the projected 3.7% mark, and wages rose at a moderate pace. This report shows that the labor market is still not weakening, and the labor market’s strength could hinder inflation from falling further. This data also pushes the idea of a recession back to the end of the line. Markets are reacting to the fact that there is no way the Fed is going to consider cutting rates while the economy and labor market are this hot, and that is bad for rates.

Bond yields have been flying higher and higher, and the recent highest levels have folks talking about how a soft landing won’t be possible and we will have to see a recession. It is likely we see bond yields continue to increase a bit longer but eventually fall back some, bringing mortgage rates back down from the highs at the same time. Don’t get me wrong, I’m not saying rates will really drop… I’m saying that we’ve seen them push higher than where they need to be, and we will likely see them fall back a bit to last week’s levels… AFTER moving higher still.

Nothing significant has changed in the outlook…however there is no way I can suggest locking in today’s rate sheets. Jobs data like this almost always brings a huge over reaction, and this morning’s knee jerk move in bonds is likely to improve given some time. Let the dust settle before considering locking. Float into next week, possibly into the CPI inflation data that comes out on the 12th, but definitely into Monday for now and then we can reassess things.

Technicals:

The UMBS 6.0 coupon is at 97.31, -64bps on the day and quite a bit worse than yesterday.

The 10yr Treasury yield at 4.84, which is much higher than yesterday but down a bit from the worst levels of the day.