Capital market update for June 3, 2024

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.

Market Trends and Analysis

Last week was a good week in terms of lock volume despite the holiday-shortened work week. We had a total of 65 locks for $31M, which is an average of 16 locks per day, right on our trailing 4-week daily lock average. We finished May with a total lock volume of 351 units for $156M, down slightly by about 3% compared to April. The Freddie Mac average 30-year fixed rate is at 7.03% as of last Thursday, up by 9 basis points from 6.94% the prior week. That puts the max APR this week for 30-year fixed rate loans at roughly 8.53% (7.03 + 1.50). The 10-year Treasury yield closed last week at 4.51% and is down significantly today by 11 basis points at 4.40.

“The Fed will need to see several months in a row of data showing inflation decreasing before they will consider interest rate cuts.”

Last week the markets continued to dial back expectations for interest rate cuts and mortgage rates drifted higher. Last Wednesday, Q1 GDP was revised downward to 1.3% from 1.6%, driven by weaker consumer spending. After many better-than-expected economic reports over the past few months, this downward revision marks the first piece of data in some time that showed a cooling economy, which will be necessary to get inflation back to the Fed’s 2% target. However, inflation remains elevated. Last week the PCE inflation report was released and was unchanged compared to April at 2.8%, which was right on expectations. The good news is that inflation is not accelerating, but the bad news is that it is not decelerating either. The Fed will need to see several months in a row of data showing inflation decreasing before they will consider interest rate cuts. Because of that, the expectation for rate cuts for the year has been pared back drastically in recent weeks. Pricing in fed funds futures now implies that the most likely scenario will be a single 25 basis point rate cut this year, occurring in November. However, there is still a good chance that we see two 25 basis point cuts by the end of the year for a total of 50 basis points, but the earliest we will see any cut is September, and more than likely not until November.

Economic Indicators and Future Outlook

This week the economic data releases will be focused on employment. The ADP report comes out on Wednesday, and then we’ll see the official U.S. Employment report on Friday. So far today, MBS prices are better by about 25-35 basis points compared to Friday’s close, and the 10-year Treasury is down sharply by about 11 basis points at 4.40%.


Stay tuned for next week’s updates and insights. Have a great week!

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