Curve Flattens as Fedspeak Resumes

Curve flattens again as long-term yields drop. The 10y UST yield dropped another 7bps today to 4.49%, now 50bps lower than October 19th’s close of 4.99%, which was a high not seen since 2007. Fed commentary ruled today’s price action, as Philip Jefferson boosted the 2y UST yield after he emphasized the importance of forceful action if inflation persists. He argued, “If expectations were to begin to drift, the reality or expectation of a weak monetary policy response would exacerbate the problem.”

Oil prices fall to multi-month lows. WTI Crude fell to below $76 today, the lowest in more than three months, and Brent Crude, a global benchmark, fell below $80 for the first time since July. Expected supply constraints due to the Israel-Hamas war haven’t materialized, therefore the decline was driven by a focus on global economic fundamentals. Demand has waned in China, air travel has yet to rebound and national oil stockpiles have swelled. U.S. stockpiles at its largest storage hub have also increased, possibly by the highest amount since June pending confirmation from the Energy Information Administration in their report scheduled for November 15th. Waning global consumer confidence is also being factored into pricing, as this could mean dampened economic activity and in turn, lower oil demand.

Mortgage rates plummet by most in over a year. Homebuyers can breathe a minor sigh of relief after last week’s 30bp 10y UST yield freefall, which sent the 30-year mortgage rate to its largest weekly decline in more than a year.  The 30-year fixed mortgage dropped 25bps to 7.61%, the lowest since September 2022. Mortgage applications spiked higher as a result, as data released today showed a 3% increase for the week that ended November 3rd. While rates remain elevated, a quicker than expected Fed pivot could see long-term rates and mortgage rates continue their decline.