Mortgage rates closed at three-week highs after Warsh's Jackson Hole keynote. UMBS 5.5 finished at 99.09, down about three-eighths of a point, and the 10-year ended at 4.712%.
The bond market sold off from the moment Fed Chair Warsh started speaking at Jackson Hole and never turned around. UMBS 5.5 — the coupon sitting closest to today's rate sheets — started the day at 99.43 and closed at 99.09, down 34 basis points in price, or roughly three-eighths of a point. UMBS 6.0 closed at 101.14, down 32. The 10-year Treasury finished at 4.712%, up 4.1 basis points. The national average top-tier 30-year fixed ended the day at 6.81%, up six basis points and the highest it has been in just over three weeks.
The clearest read on what actually happened is at the short end of the curve. The 2-year Treasury, which tracks Fed rate expectations far more closely than the 10-year, rose 11.7 basis points to 4.347% — nearly three times the 10-year's move. Warsh paired an upbeat assessment of the economy with hard talk on inflation and the Fed's commitment to getting it back to 2%. The market took that as a Fed in no hurry to cut, and Fed Funds Futures repriced toward a hike rather than a cut before year end. Lenders issued two separate rounds of negative reprices, at 10:12 and again at 11:43 AM ET.
For borrowers, Friday was the day the early quote was the good one. If you locked before 10:00 AM ET, you are holding a number the market walked away from inside of an hour. If you floated through it, you are heading into the weekend at the worst levels of the week, and Monday opens on whatever gets made of this speech overnight.
Worth keeping the scale straight, though. Friday's average is only modestly above where last Friday finished — this was one sharp session, not a trend breaking. The next real test is Friday's monthly jobs report, the first hard data to land against Warsh's read on the economy. Weaker hiring would undercut it and give rates room to come back; stronger hiring would confirm it and keep the pressure on. If you are floating right now, that report is the thing to plan around.
— David Burson, NetRate Mortgage