Hawkish Fed Talk Hits the Front End While Long Yields Hold Steady‍

Bonds are mixed but mortgage pricing is still soft this morning. The 10 Year Treasury yield is 5.290%, essentially unchanged on the day (down 0.1 bps) after trading higher earlier, and UMBS 6.0 is priced at 97.75, down 0.08. Yesterday the mortgage market recovered almost all of an early selloff after a decent 10 year auction, and today the 10 Year has held that ground even as pressure builds elsewhere.

The driver is the Fed. Governor Waller said more rate hikes are needed, which follows yesterday's FOMC minutes showing most participants viewed another hike as likely appropriate by year end. Shorter maturities are taking the brunt, with the 2 Year yield at 4.806%, up 4.7 bps, and the 5 Year at 5.056%, up 3.2 bps. The 30 Year yield is 5.652%, down 1.9 bps, so the curve is flattening, with the 2s/10s spread at 48.4 bps.

On the data front, weekly initial jobless claims came in at 197K against 200K expected, a slightly firmer labor market that does nothing to ease rate pressure. The key event for the afternoon is the 30 year bond auction. A weak showing would push long yields higher and mortgage pricing lower, while strong demand could help stabilize things into the close.

Today's News and Market Impact

Waller's comments are the story today. Hearing a Fed governor say more hikes are needed, one day after the minutes pointed the same direction, tells the market that the policy rate is not done rising. That keeps upward pressure on yields across the curve, and mortgage backed securities follow Treasuries.

With the 10 Year sitting near 5.3%, mortgage pricing remains close to the weakest levels of the year. Long bonds are holding up, but the front end is selling off on rate hike talk, and mortgage coupons have not joined the bounce. A strong 30 year auction is the best near term shot at relief.

Benchmarks

10 Year Treasury: 5.290% ▼ down 0.1 bps

UMBS 6.0 Coupon: 97.75 ▼ down 0.08

2s/10s Spread: 48.4 bps, flatter 4.8 bps

Lock or Float?

15 Days: LOCK. Closing is close, Fed commentary is hawkish, and the 30 year auction adds event risk this afternoon. There is little to gain from waiting.

30 Days: LOCK. Yields are near their highs with no confirmed bottom, and markets are leaning toward more Fed hikes. Protect your pricing.

30-45 Days: LOCK. One good auction yesterday does not make a trend reversal. Wait for a confirmed bottom in yields before floating.

45+ Days: LOCK. Even with more time, the Fed path is pointing to higher rates for now. Lock until a genuine bottom is confirmed.

Ready to see your numbers? Check today's pricing at purerate.com/rates, run your scenario with our calculators, follow the Rate Watch, learn more at purerate.com, or apply now.

Drew Fisher, NMLS #44061 | Pure Rate Mortgage LLC, NMLS #2578474. This commentary is for educational purposes and is not a commitment to lend or a guarantee of any rate or term.

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