This is Matt Graham with the MBS Live Market Update. Mortgage rates made it to their lowest levels in a month last week, once again getting a helping hand from trouble in the tech sector. The overall improvement may have been slightly smaller than the previous weeks, but Thursday specifically offered another impressive example of how quickly concerns about AI-related growth can translate to lower borrowing costs for home buyers. Last week, we noted that rates could continue improving if tech jitters stuck around, and stick around they did. More importantly, they began spreading beyond the handful of companies that initially got the market’s attention. With no major economic data to settle any debates about growth or inflation, investors were left to decide how seriously to take those concerns. Thursday’s answer was fairly emphatic. Disappointing earnings and outlooks from several big tech names helped fuel sharp losses in the Nasdaq, and the bond market benefited. The average mortgage lender dropped rates by 0.1% on that day alone. There was a modest bounce on Friday. We gave back 0.03%, but that still left rates lower by 0.04 versus the previous Friday and very close to the best levels since September 23rd. So why would trouble in the tech sector help mortgage rates? CoreWeave, the company, remains a useful example. Investors have been demanding much higher yields to hold that company’s debt, and that reflects concerns about the risks involved. At several points last week, the sharpest increases in CoreWeave’s yields lined up with the strongest improvements in Treasuries. That sounds contradictory at first because how can rising rates in one part of the bond market help rates fall elsewhere? The answer has to do with what investors are worried about. If they’re less comfortable lending money to companies tied to the AI boom, they can move towards safer alternatives, including Treasuries and MBS. More demand for those bonds puts downward pressure on rates, of course, and, uh, we can look at this yet another way. The level of corporate debt issuance in AI has been absolutely huge. It’s definitely put upward pressure on other rates because that issuance competes for investor attention, and if it saps demand from Treasuries and MBS, lower demand equals higher rates, all else being equal. There’s also a bigger economic question. If AI spending and growth slow down, it could take some momentum out of the economy and ultimately ease inflation and put downward pressure on economic data. None of that requires a slowdown to have already shown up in the economic reports. Of course, markets try to get ahead of those reports. Right now, traders are positioning for the risk that the tech problems may have broader consequences, but they’re definitely still feeling that out. What about oil? It has largely actually faded into the background since late September as a day-to-day driver of rates. Uh, last Thursday was a good example with oil prices moving higher even as bond yields fell sharply. Energy costs, of course, still matter for inflation, but they haven’t been calling the shots in the bond market. Recently. What does this mean for this week’s Fed announcement? Over the past two weeks, expectations have shifted decisively in favor of the Fed leaving rates unchanged this week. And that’s a big change from the recent concern, which has largely priced in another hike at this meeting, and it fits with the market taking the risk of slower growth more seriously. Also, we know from various Fed comments that they just wanna take a measured pace with the rate hikes they think will probably be necessary in the coming months. But, uh, the decision to hold rates steady wouldn’t automatically send mortgage rates lower this week. Markets, of course, have already priced that in. The bigger question is what the Fed says about the outlook and how that compares with what investors have come to expect. We know Warsh isn’t keen on forward guidance, but on several occasions, things he has said have sort of, uh, given the market an impression of his tacit forward guidance, shall we say. If the Fed gives more weight to the risk of a slowdown, it could reinforce the thinking behind the recent improvement. And if it keeps the focus squarely on stubborn inflation and the possibility of more hikes, we could actually see some upward pressure on rates. Beyond the Fed, the durability of this rally depends heavily on the durability of tech troubles. If those concerns deepen and economic data begins confirming that slower growth, rates would have more support. If tech sentiment recovers while growth and inflation remain roughly unchanged, an important source of that support could disappear. For now, borrowers have another week of improvement in hand last week. Whether it becomes a lasting trend depends on how much of the slowdown markets are worrying about actually materializes. That’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBS Live!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.