Bonds sell off after a hawkish Fed keynote; UMBS 5.5 down 21 ticks with negative reprice risk live.
The morning was quiet until 10:00 AM ET. Fed Chair Warsh's Jackson Hole keynote read as unequivocally hawkish, Fed Funds Futures sold off immediately, and the bond market followed within minutes. The 10-year Treasury is at 4.693%, up roughly 1.8 basis points on the day and at its highest level of the session. UMBS 5.5 — the coupon sitting closest to today's rate sheets — started the morning at 99.43 and has fallen to 99.22, a 21-tick drop, with negative reprice risk flagged on the tape. The UMBS 6.0 price shown with this update is the 9:43 AM ET morning print, taken before the speech; the live level is lower than that figure suggests.
It is worth being precise about what today's data was and was not. The "nonfarm payrolls" line on this morning's calendar is the preliminary annual benchmark revision — a statistical restatement of the past year's job count. It says nothing about the current state of hiring, and the monthly employment report that does is out next Friday. August Chicago PMI (57.0 forecast against 57.6 prior) and August Consumer Sentiment (51.0 forecast against 55.2 prior) also crossed this morning. None of them set the tone. The keynote did.
For borrowers, the practical point is timing. Lenders published this morning's rate sheets before the speech, and when mortgage-backed securities drop this fast intraday, negative reprices — lenders reissuing worse pricing in the middle of the day — become likely rather than hypothetical. If you are holding a quote from this morning, it is probably the better of the two numbers you will see today. If you are floating, you are floating into a market that just revised its view of how quickly the Fed will cut. The 30-year conventional number opened the day at 6.75%, and today's risk to that number is to the upside. If your payment works at this morning's quote, locking it is a defensible decision rather than a rushed one.
— David Burson, NetRate Mortgage