Insights and Analysis: Mortgage and Real Estate Capital Markets Update with Jeff Rosato, SVP of Capital Markets at Nationwide Mortgage Bankers
I hope everyone enjoyed the weekend! Here is this week’s update on the major bond market indices, scheduled Federal Reserve meetings, upcoming market-moving economic data releases, and general bond market trends.
Lock Volume and Mortgage Rates
Last week was another good week in terms of lock volume. We had a total of 103 locks for $46M, averaging 21 locks per day. Our trailing 4-week daily lock average ticked up to 18 per day. So far, lock volume in June is down just slightly compared to the same time in May. The Freddie Mac average 30-year fixed rate is at 6.95% as of last Thursday, down by 4 basis points from 6.99% the prior week. This puts the max APR this week for 30-year fixed-rate loans at roughly 8.45% (6.95 + 1.50). The 10-year Treasury yield closed last week at 4.21%, down sharply by 22 basis points on the week, and is currently up a few basis points to 4.28%.
“The market finished last week off with a rally after the PPI report released on Thursday was in line with CPI and showed slight declines in May.”
Market Trends
Mortgage rates declined slightly last week, with average 30-year fixed rates remaining below 7% for the second week in a row. The May employment report, released two Fridays ago, showed a gain of 272,000 jobs, well above market expectations of 190,000. This strong employment report was good news for the economy and helps to quell fears of a sharp economic downturn but was bad news for the Fed and those hoping for interest rate cuts. The strong employment numbers supported the Fed’s stance of keeping rates higher for longer until they see consecutive months of slowing economic growth and inflation.
Unsurprisingly, when the Fed met last week, they did not make any changes to their benchmark rate. The May CPI report, released last week, came in softer than expected, which is good news for the Fed and marks the first inflation report in a few months to show inflation back on the decline. The market finished last week off with a rally after the PPI report released on Thursday was in line with CPI and showed slight declines in May.
Sensitivity to Economic Data
The past week is a good example of how sensitive the bond markets are to fresh economic data. Just two Fridays ago, the market tanked because of the strong employment data, but a few days later, the market rallied strongly on weaker-than-expected inflation data. Overall market expectations have shifted to just one rate cut expected this year, most likely a 0.25% rate cut at the November or December FOMC meeting. There is still a chance that a cut could come earlier at the September meeting if new data supports the Fed’s case, but it is no longer a likely scenario. Expectations have shifted dramatically since the beginning of the year when most expected 5 or 6 rate cuts for a cumulative 1.5-1.75% in cuts. Despite the favorable inflation data released last week, it remains well above the Fed’s 2% target, so they are in no rush to start cutting rates. They’ll need to see a few months in a row of not just flat inflation data, but the resumption of declines in the headline numbers. Hopefully, last week’s data is the first in a string of consecutive declines for inflation, but for now, we’ll need to be a little more patient as we wait for the first rate cuts.
Current Market Conditions
Today, MBS prices are worse compared to Friday’s close, and it looks like the rally has lost steam. MBS prices are down by about 10-15 basis points compared to Friday’s close, and the 10-year Treasury is up a few basis points to 4.28%. Please note, the lock desk will be closed for new lock requests on Wednesday due to the Juneteenth holiday.
See you next week for the next update. Have a great week!
