Stocks and Mortgage Bonds are both higher so far this morning, while 10-year yields are lower. Both Mortgage Bonds and Yields have been helped by the trend that has been in place since August 22, when we first learned the Fed would be cutting rates. So far, the trend is our friend.
Later today at 1:00pm ET there will be a 10-year Treasury Note Auction, which can be market moving. Additionally, the Fed Minutes from the September 17 Fed meeting will be released at 2:00pm ET. This will be interesting to dissect, because even though the Fed cut 25bp, it’s hard to remember a time when there was a move divided Fed.
NY Fed Consumer Expectations Survey
The NY Fed released their Consumer Expectations Survey for September, showing that consumers are feeling pessimistic about the labor market. Over the next year, consumers are expecting to earn less, have a higher probability of losing their job, and for the overall unemployment rate to be higher.
Last week, ADP released their employment report, showing 32,000 job losses. The published hard data is showing weakness, but so too is the soft survey data. Bottom line – There is a lot of weakness and fear in the labor market, which should result in a 25bp cut on October 29.
Mortgage Applications
The Mortgage Bankers’ Association released their mortgage application data for last week, showing that purchase volume was down 1%. Year over year, purchase applications are still up 14%.
Refinances fell 8% but are still up 18% year over year. Obviously, refinances are extremely rate sensitive, and volumes have fallen a bit since rates have risen from their recent lows.
Last week, however, rates did improve slightly from the previous week, falling from 6.46% to 6.43%, but not much. Rates are now 7bp higher than this time last year.
To the extent that you can offer attractive adjustable-rate mortgages, make sure you are doing so. They are making a comeback – ARMs made up 9.5% of total applications, as there could be a significant savings in rate, and they mathematically have to be better than a fixed for longer than the fixed period of the ARM.
For example, a 7-year ARM is likely better than a 30-year Fixed for at least 9 years or so, even in a worst-case scenario. Using historical norms of SOFR, it could be better for the life of the loan. We are going to be releasing a new ARM vs Fixed tool in the coming weeks to help you clearly illustrate the benefit.
Technical Analysis
Mortgage Bonds are moving higher after testing the rising trend line that has been in place since August 22. The trend is our friend and has provided good support thus far. Bonds have also broken above the 25-day Moving Average, and if they can get above the highs from October 2 and 3, there is a clear path to 101.31, which is almost 30bp above present levels.
The 10-year also held at its trend line, which has been on a downward trajectory since August 22. Yields are also now starting to break beneath their 25-day Moving Average. If yields can get beneath the lows from Oct 2 and 3, the next stop is 4%.
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