UMBS 6.0 was flat.  The 5.5 coupon was up 6 bps in the first hour of trading.

Bond pricing is slightly improved this morning as treasury yields continue to inch lower. The U.S. 10-year Treasury yield is currently 3.907%, down from the open at 3.929%. The 10 year continues to decline to levels not seen since late July.

The Fed’s indication of three rate cuts in 2024 has driven market activity over the past week. Investors were quick to increase bets on a quicker loosening of monetary policy. Housing starts released this morning showed a jump of 14.8% month over month to an annualized rate of 1.56 million in November. It is the largest increase in six months as word carries of lowering interest rates.

Housing starts rose 15% MOM and 9% YOY to a seasonally-adjusted annual rate of 1.56 million units. Building Permits rose 2.5% MOM to 1.46 million. This was below last year.

Multi-unit (5+) under construction remains near record levels. This should help put downward pressure on rents and ultimately inflation. I am not sure where these multi-family units are being built, but there will be a deluge of units hitting the markets.

CoreLogic reported that rent prices are now up 2.5% YoY in Sept.  Which is down 2.6% from previous report.  The latest CPI report showed that shelter costs rose by 6.5%, which is 4% higher than what we are actually seeing due to the lag.

NAHB Housing Market Index (Builder Confidence) rose 3 points to 37 – remaining in contraction.  Current sales are stable at 40.  Future Expectations rose 6 points to 45.   Traffic rose 3 points to 24.

Student loan payments resumed in October, and only 60% of them were made, according to the government. That is a pretty hefty percentage of delinquencies, and suggests that some of the spending that has been going on is unsustainable.

After last week’s exceptionally strong improvement, bonds and mortgage rates have leveled off in a fairly sideways pattern.  If you had to choose a baseline for the rest of 2023, it would be for the sideways pattern to remain intact.  Lower risk and lower reward for lock/float decisions until further notice.  Keep in mind that late December can bring random volatility driven by lighter participation.

The baseline is “boring” when it comes to Thanksgiving week and the 2nd half of December.  Things don’t always go according to those plans, but bonds are sticking to the holiday trading script this year.  For the 3rd straight day, 10yr yields are heading into the after hours session within 1bp of 3.92%, and they haven’t been far from there in intraday terms.  This is an exceptional absence of volatility and directionality relative to all the movement leading up to last week’s Fed rally.  As long as it stays that way, bonds are sticking to the script and there’s nothing to see here.  If it doesn’t stay that way, we’ll cross that analytical bridge if we come to it.

UMBS 6.0 closed down 5 bps.  The 5.5% coupon improved by 5. 

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