MARKET UPDATE | 9.15.23

10 yr jumped overnight and is now at 4.32

Read more: MARKET UPDATE | 9.15.23

Stronger data in China as well as a market that has begun to take on the position of a “higher for longer” pushed yields up overnight to levels that are likely to test the cycle highs.

Why is this happening now?  Why are Investors not rushing to lock in yields on the 10 yr and MBS at some of the highest levels we have seen in the last 20 years?

The SOFT-LANDING narrative has gained a lot of steam.  Why would that impact the rate market and keep yields high?  Because the market is out of their minds and believe that the market now can sustain these higher rates and substantially tighter credit without major impacts on jobs.

Don’t think that the tone in the market cannot change overnight, but the current trade market is tied to that the Feds, even though there is only a 3% chance now priced into the market of a raise next week, may be able to keep the rates at these high levels for some time.  If there was concern in the market that they would not be able to and if a “cut” was priced in earlier, yields would drop quick.  Based on the market’s reaction to inflation this week, it appears the jobless claims and job market is what now the market is going to trade unless there are huge surprises. 

If you go back a year and read the updates, we talked about the need for inflation data to continue to improve, as it has, but the need for the job market to deteriorate along the way as well.  This has not happened YET because the spending and velocity of money in the market has been high. 

I am a fundamentals person and people CANNOT continue to spend at the pace they have been.  Savings is close to deleted, student loan payments kick in here in a few weeks and credit card debt is extremely high.  I believe the people had their fun this summer, but spending I believe will drop substantially starting now for next few months and I believe soon the job cuts will show and we will not be in the position the market is beginning to expect.  It will happen, it is just when. 

We will see where things go today, but the 4.33 mark is going to be tested throughout the day and it is entirely possible to see a new cycle high based on how much of the market believes we can stay status quo.   Until the data shows it cannot, this higher for longer narrative does not create a large demand on locking in these very attractive returns because those returns will be there in their minds in a few months. 

Josh Erskine 

Chief Executive Officer

CalCon Mutual Mortgage LLC dba OneTrust Home Loans
Yellowstone RE Holdings LLC
Yellowstone Global Investments LLC