Last week, 2-year and 10-year Treasury yields rose 15 and 12 BPS, respectively. MoM and YoY CPI numbers came in hotter than anticipated for both headline and core CPI. 2-year SOFR Swaps jumped up 24 BPS following these numbers, and projected Fed cuts dwindled to just 1.5 for 2024. At this point, the market expects the first cut to come in September.
The weekly swing was driven almost entirely by CPI. There was a bit of a rally and flight to quality on Friday due to unrest in the Middle East, with Iran striking against Israel. However, this rally has been wiped out this morning following blowout Retail Sales data.
Volatility is up significantly, which has impacted the cost of purchasing rate caps significantly. We expect this trend to continue.
With elevated CPI data 3 months in a row and employment numbers hopping too, those that were holding out for lower rates may have to keep waiting for quite a while. There’s a real chance we could see the 10-year Treasury surpass 5% in the near future.
A solid percentage of maturing Fannie/Freddie deals are going back into CMBS, but this could cause further stress. Smaller regional banks and credit unions may continue to be more prevalent on the new loan side.
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