Ouch!  UMBS are down a big 39 bps in the morning.  S&P Futured down 10.5 points as traders returned to their desks following the worst weekly selloff on Wall Street since March.

Most of the weakness arrived in the overnight session, and it was largely a gradual affair.  Yields were only slightly higher in Asia and still under Friday’s highs at the start of European trading.  Europe, however, added to the selling pressure more abruptly on slightly stronger data, ECB comments, and oil price concerns.

US traders jumped on the dogpile after comments from Fed’s Goolsbee on the utter commitment to the 2% inflation target (in other words, a persistence of rate hikes or holding rates at high levels in pursuit of that target).  The government shutdown may linger as a background concern as government spending tends to increase after shutdowns end.  The UAW strike is also a consideration as a supply constraint that pushes vehicle prices higher.

In response to the Fed’s hawkish words, the Optimal Blue 30-year mortgage lending rate closed at 7.30% Friday, its highest level in at least half a decade

After the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk

fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Oil resumed a rally as hedge funds piled on bets tightening supplies will stoke demand.

Markets also not yet convinced the Fed will truly take rates higher and hold them there longer. When the markets actually start to accept this and price in this reality, we will see mortgage rates move higher. Although a true recession is likely to come at some point, it won’t be for quite a long time if it does. In the meantime, we aren’t likely to get any help from any data the rest of this month, and I don’t think October’s jobs data next week is going to be that much more helpful.

Bonds began the week with another move to long-term yield highs.  There was a wave of selling in the overnight session led by Europe and another when domestic traders ramped up for the day.  Neither were unequivocally the product of some data or news headline although there were a few scapegoats that could be mistaken for motivation.  The problem with said scapegoats is that–while they likely contributed–they were not nearly meaningful enough to justify the movement in question.  Conclusion: this sort of selling is broader and more sentiment-driven.  Traders are repricing “higher for longer” odds with the longer end of the yield curve.  Buyers are on strike until something convinces them to buy and that will be hard to do unless next week’s data is weak.

MBS closed the day down 40 bps at 98.96 on the 6%.

Mortgage Peeps – Follow us on Facebook (below or #DuaneKayeWTMS) or Twitter (@MakesYouSmarter) for daily rate lock updates.