Morning! This is MF Lending - I am back! I hope you missed me - because I missed you 🫶🏻.

Here’s what we’ve got for you today:

1. How the Isreal-Hamas Conflict Affects Mortgage Rates 📺

2. Market Movers: 2-Week Summary 🌴

By the way, this article on Fed Coffee Corner - September ☕️ is the most clicked link in this newsletter, you should check it out if you are interested.

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Rates Today 📉

How the Isreal-Hamas Conflict Affects Mortgage Rates 📺

Traditionally, US government bonds (like 10-yr T Bills) are seen by investors as the safest investment for their money.

Institutional investors tend to gravitate towards these safe harbors in times of significant turmoil or uncertainty until the dust settles.

That is exactly what is happening this morning. 

Over the weekend the Isreal-Hamas conflict erupted.

Investors have no idea how this is going to affect the global economy, geopolitical implications, or the state of the Middle East - there are far too many unknowns.

Therefore, investors did what they normally do, run towards the safe harbors. Over the weekend, these investors rushed to purchase bonds from the US government.

This increase in purchases drove the prices for 10-yr T Bills down (basic supply and demand pressures). As every smart MF Lending reader knows, mortgage interest rates follow the 10-yr Treasury Bill.

When the market opened Tuesday morning, the result was a drastic improvement in interest rates (by over 40bps).

You can expect this to improve interest rates quoted to preapproved buyers, or those who put in offers over the weekend.

Market Movers: 2-Week Summary 🌴

Here are the top market movers that occurred over the last two weeks while I have been out (most are negative impacts 😢)

9/29 - CORE PCE August

Core PCE matched forecasts at 3.9% (down from 4.2% from last month). This is positive news as it shows that consumer spending may be slowing - something the economy desperately needs.

10/3 - JOLTS Job Openings for August

This tracks job openings in August for private companies. This smashed forecasts. Total job openings were 9.61M (forecast was 8.8M). This was a negative impact for rates. We want the economy and the job markets to slow down - not increase with job openings.

10/5 - Jobless claims September

Jobless claims fell to 47.4K from 75K. Again - this is not good news for interest rates. Unemployment is falling, not rising. Therefore it will take longer for the economy to slowdown.

10/6 - Non-Farm Payroll September

Once again, this jobs report smashed forecasts. Non-farm payroll came in at 336k - it was forecasted at 170k 🤯. Without any doubt, the jobs market is much stronger and stickier than anyone anticipated.

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The overall impact of this news resulted in the MBS market falling nearly 60bps in two weeks. That resulted in mortgage rates rising to 7.875%.

Now that MF Lending is back, you will get more up-to-date summaries of new economic impacts. 🪩

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you find it valuable.

— Michael F DiLucchio