UMBS were flat on the open. Stock futures were up 9 points.
Stocks advanced and bond yields dropped as fresh signs of an economic slowdown prompted investors to ramp
up bets on interest-rate cuts next year. This week’s soft inflation and jobs data in the US has fueled the conviction that aggressive policy-tightening cycles from the Federal Reserve and other central banks are finally at
an end. That view helped drive $23.5 billion into stock funds in the week through Nov. 15, the second-biggest inflows of the year
If bonds had been largely on the move through the CPI data, they’re more likely to favor a less directional range until the first full week of December. General range trade lock/float thoughts: the closer rates are to the recent lows, the more it makes sense to consider locking. Being closer to recent highs (without blowing through them due to an obvious catalyst) allows for more subjective decisions.
Housing starts rose to 1.372m vs 1.346m in the Prior month. Up 1.9% [+3.1% prev]
Despite the conflict in the Middle East, oil is showing signs of healty supplies and rising stockpiles and crude prices are on a run of four straight weekly declines – the longest streak since May. Lower oil prices as we head into winter means lower prices at the pump and lower heating oil bills, which is good for the fight to bring inflation down and good for rates.
The National Association of Realtors reports that listings are increasing as mortgage rates fall. The rate “lock-in” effect, which basically says that people are unwilling to move when that means trading a 3.5% mortgage for a 8% mortgage, appears to be easing. Median listing prices are holding up, although it sounds like some of the Western markets which rocketed during the pandemic are seeing a lot of price cuts without homes moving.
NAR Chief Economist Lawrence Yun forecasts that existing home sales will rise 15% in 2024 as mortgage rates fall into the 6% – 7% range by the Spring Selling Season. Based on normal MBS spreads, a 4.4% 10-year should translate into a 6.4% mortgage rate. “The 10-year Treasury yield is at 4.4%, which historically means mortgage rates could be at 6.4%, but they are much higher,” said Yun. “The bond market is forcing the Fed to pivot.”
With essentially nothing meaningful on the economic or event calendar, the bond market did a good job sticking to a logical script of “more sideways and less volatile after CPI.” It remains to be seen if that script will remain in force all the way until the first full week of December, but there’s nothing in terms of scheduled events that promises to derail it. The only exception might be the weird trading dynamics occasionally seen on Thanksgiving week, but those must be taken with a grain of salt (or an ounce of gravy?) until being confirmed or rejected by more active markets in the following weeks. All we know right now is that this was a solid week that ended on a solid note.
UMBS closed the day pretty flat – down 3 bps at 101.20. Ginnie Mae were about the same.