Market Commentary
October 30, 2023
Last week was a somewhat moderate week in the bond market, at least from where we started to where we finished. The 10yr finished the week at 4.837, down a little from 4.91 at the end of last week. Economic data was fairly light. We started with new home sales which increased by a surprising amount, given where mortgage rates are however, we also saw the largest yearly decline in the median home price in almost 15 years which offset each other. GDP and PCE rose, but showed some mildly encouraging signs that inflation is still moderating. We saw a continued trend that spending still rose while personal savings and disposable income fell suggesting that consumers are exhausting their pandemic piggy banks. I don’t think that is a trend that can last too much longer.
No surprise that this week was a bit tame though as everyone is focused on the Fed meeting next week that also brings labor market data with the JOLTS and employment report. The focus will not be on what the Fed does to rates, it would be an absolute shock if they changed, it will be on Powell’s comments moving forward. I expect with the core inflation rate at 2.5% over the last 3 months compared to 3.7% over 12 months (suggesting it is moderating), the message will be more of the same narrative…wait to see more data and keep rates higher (where they are) for longer.
Looking at the historical 10yr chart, we are at a 16 year high (chart below). Higher for longer doesn’t seem too bad when you look at this chart – 80s may have had some great music IMO, but I would hate to make those mortgage payments! Pretty sure there aren’t many loans left from that time period, so focusing in on current mortgagors, most are locked in to much lower rates. With mortgage rates at 8% it is unlikely many will want to extract equity via a cash-out refinance. Next up is a HELOC option. Those rates are 9%, the highest in 23 years and come with a hefty monthly payment that is required. If you have equity and are age qualified, anybody know another option to extract equity that doesn’t require a monthly payment?* 😉
No change in the expected rate this week as the 10-year weekly average is the same 4.87.
Have a great week!