MBS are down 14 bps on the open, while stock gain about 9 points.

After yesterday’s RBA (Royal Bank of Australia) surprise rate hike, the Bank of Canada is out with a copycat performance, including a more ominous warning about the nature of inflation. All of the above has some traders questioning the certainty of a “skip” from the Fed next week. It’s also putting upward pressure on bonds, particularly in shorter-term yields.

With the debt ceiling deal in place, Treasury is poised to issue more than $1 trillion in short-term debt to keep the lights on. This will push up short term rates at least in the near-term, which won’t be supportive for mortgage rates. MBS spreads continue to hang out at the highest levels since the Reagan Administration.

Another headache for the mortgage industry: All-cash buyers are the highest since 2014, coming in at 33%. With higher rates and home prices more borrowers are opting for FHA loans. FHA loans are back to pre-pandemic levels, while jumbo loans are declining.

Reprice risk on the day is low, with no Fed speakers and no economic data to talk about. We are simply in the middle of a week that we figured would be this way… twiddling thumbs and passing the time.

US rate traders are pretty sure they have the Fed figured out after two separate Fed speakers used the word “skip” in speeches last week.  There’s a low chance of a rate hike next week, and a high chance that rates remain high through 2023.  Today’s BOC (Bank of Canada) announcement caused a bit of a rethink as to just how sure we can be about a “skip” next week and it added fuel to the fire of “higher for longer” when it comes to the forward outlook.  Yields shot higher right after the announcement and never saw much of a recovery.

MBS closed down 30 bps.   Stocks down 16.