September 12th, 2022 - Market Update
Current position: Floating.
Current position: Floating. Bonds will go through their monthly coupon rollover after the close of the market today. This occurs each month because Mortgage Bonds are finite. They have an end term, such as 30 years. Therefore, each month a new 30-year period begins. This new 30-day extension is reflected in an adjusted rollover price. This rollover does not impact your pricing.
Stocks and Mortgage Bonds are both higher to begin the week.
Later this afternoon at 1:00pm ET there will be a 10-year Treasury Note Auction, which can have a big impact on the markets. Since the last auction, yields have risen roughly 0.5% and may draw some more demand - But if it doesn't, investors may believe yields will continue to climb.
This week will be highlighted by inflation data, Auctions, and Retail Sales. The forecasts the Consumer Price Index report are out, and August year over year reading is expected to fall from 8.5% to 8.1%, with a negative 0.1% reading in the month of August.
If these expectations were to come to fruition, it could be a big positive for the Bond market. After getting past the September reading, the comparisons from last year get much tougher, and is one of the reasons we feel we could see inflation make a meaningful move lower towards the end of the year, which will provide relief for interest rates.
Will a drop in CPI cause the Fed to hike by 50bp instead of 75bp on June 21? Besides the fact the Fed Mole, Nick Timiraos said that the Fed will be hiking 75bp, our good friend Peter Boockvar doesn't believe so, especially after comments from voting members Waller and Mester on Friday.
Fed Governor Waller said,
"The consequences of being fooled by a temporary softening in inflation could be even greater now if another misjudgment damages the Fed's credibility. So until I see meaningful and persistent moderation of the rise in core prices, I will support taking significant further steps to tighten monetary policy.”
Cleveland Fed President Mester said,
"I would welcome a good report on inflation, but I don't think that one report is going to change my view that we're just really at a high inflation level, and the risks are that it stays high.”
Clearly, the Fed appears to be steadfast in raising rates aggressively, even if we get a lower inflation reading.
CoreLogic released their Q2 Home Equity report, showing that equity has grown almost 28% since last year. The average home equity gained over the past year is $60,000. Mortgage properties with negative equity decreased by 18% from last year from 2.3% of all mortgaged properties to 1.8%.
Mortgage Bonds are taking another run at the falling trend line, which has rejected Bonds the last few times tested. Bonds have been in a downtrend since early August, but today's Auction, and tomorrow's CPI report, could be the catalyst to help prices move higher and break out of this trend.
Begin the day floating.
Source: MBS Highway
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