Capital market update for May 28, 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 holiday 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 quiet for the markets, and lock volume was on the lighter side. We had a total of 62 locks for $26M, which was down slightly compared to recent weeks. We averaged 14 locks per day, which is slightly below our trailing 4-week daily average of 17. So far in May, lock volume is down slightly by about 11% compared to the same time in April. The Freddie Mac average 30-year fixed rate is at 6.94% as of last Thursday, down by 8 basis points from 7.02% the prior week. That puts the max APR this week for 30-year fixed-rate loans at roughly 8.44% (6.94 + 1.50). The 10-year Treasury yield closed last week at 4.47% and is up a few basis points today to 4.49%.

Last week, the minutes from the latest FOMC meeting were released, which unsurprisingly showed that Fed voting members feel they need to see more evidence of disinflation before considering any interest rate cuts. Also, last week, new home sales disappointed by falling 4.7% in April after being above average in March. The drop-off was sharper than expected but largely driven by the move higher in interest rates throughout April. Both new and existing home sales are now trending in the negative direction, which will continue to be a drag on mortgage origination volumes along with stubbornly high-interest rates.

“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.”

Over the past two months, market participants pushed hopes of rate cuts back to September after a string of better-than-expected economic data and persistent inflation. The futures markets have drastically pared back bets on the number of rate cuts that will be made in 2024 to a maximum of 50 basis points of cuts, which is down sharply from 150 basis points at the beginning of the year. 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.

Economic Indicators and Future Outlook

This week, there is plenty of fresh economic data with the first Q1 GDP revision coming on Thursday, personal income and spending on Friday, and the Fed’s preferred gauge of inflation, the PCE index, being released on Friday.

Today, rates are generally flat compared to Friday’s close, and the 10-year Treasury is up slightly by about 2 basis points at 4.49%.

Have a great week!

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