Last week was very volatile. It started out soft, with rates coming down 20+ BPS through the first few days of the week, which was driven by fairly soft ISM numbers and a pretty soft JOLTS number as well. It’s also worth noting that the Bank of Canada and ECB both cut rates by 25 BPS for the first time last week. Additionally, ADP numbers came in soft, which was just another tidbit that followed the script of a softening economy. On Friday, we got a blowout Nonfarm Payroll number at +272,000, compared to +180,00 expected (per Bloomberg). Rates moved up across the curve on this news by about 15 BPS.
This week we have a couple Treasury auctions to watch (3’s and 30’s), but for the most part the week will be about inflation. We get CPI on Wednesday, followed by the FOMC meeting and PPI on Thursday. Markets should remain reasonably rangebound prior to Wednesday. We always advise clients to lock in any trades before big events like this if possible. Even if Borrowers think rates are going to come down, it’s wise to place a shorter hedge or modify the structure rather than waiting for rates to come down. It’s impossible to time the interest rate markets in this day & age.
Rate cuts have been pushed out until the end of the year, with 1.5 priced in by the completion of the December Fed meeting. Delinquency volumes have tapered a bit since May, but new CMBS volume remains relatively low.
