EU REAL ESTATE: Property: Week in Review

• In the FI space, Bund futures remain in a bear-mode cycle following a recent impulsive sell-off and this week’s downward acceleration. The contract has traded through the 128.00 handle, paving the way for an extension towards the 127.00 handle next. Key short-term resistance is 128.75, the Dec 3 high. Note that the contract has entered oversold territory. A corrective bounce would allow the oversold condition to unwind. First resistance is 128.08, Monday’s high.
• Recent weakness in Gilt futures exposes the next important support at 90.53, the Nov 25 and 26 low. A breach of this level would undermine a bull theme and instead signal scope for a deeper retracement towards 89.86, the Nov 19 low and a bear trigger. For bulls, a resumption of gains would signal scope for a climb towards resistance at 92.55, the Nov 11 high. Initial firm resistance to watch is 91.93, the Nov 27 high.

• Overnight vols are uniformly higher across G10 FX as the market captures today's FOMC decision, but the risk premium added is most notable in JPY, with overnight implied rising to around 14.3 points, ~3.5 points above the 30-day IV rolling average in the pair - pressing the break-even on an ATM overnight straddle to around 90 pips.
• While there is limited directional skew in front-end of the USDJPY risk reversals curve (1w risk reversals on the higher end of longer-run averages but within recent ranges), markets remain cognizant of the hawkish risks surrounding today's Fed meeting, with more attention than usual on the Statement to see how resolutely the easing bias remains.
• With potential risks to the upside, it is still worth noting that option market pricing would suggest that key resistance at 157.89, the bull trigger and Nov 20 high should cap gains into the Thursday NY cut. However, above given the strong underlying bullish theme, 158.87 (Jan 10 high) provides the next topside target.
• More broadly,  downward pressure on the JPY continues to be a focus this week, amid the hawkish repricing for core fixed income markets and regional geopolitical uncertainty taking its toll. Despite a slightly weaker risk backdrop today, cross/JPY also remains a notable beneficiary of the overall dynamics.

New purchase mortgage applications gave back a small part of their recent push higher but continue to offer scope that recent cautious optimism for existing home sales might have continued in the near-term. A resumed tightening in mortgage swap spreads acted as a small tailwind for financing activity. 

• MBA composite applications increased 4.8% (sa) last week after -1.4%, a decline that was as part of five consecutive weeks that were either flat or stepped lower.
• Within the details, new purchase applications gave back some of their recent gains albeit with only -2.4% after 2.5%, whilst refis bounced 14.3% after five consecutive declines worth a cumulative -21.5%.
• Composite applications are at 68% of 2019 levels, new purchases at 70% after last week’s 72% had been the highest since Feb 2023, and refis are at 68%.
• The 30Y conforming mortgage rate inched 1bp higher after an 8bp decline the week prior, a move that likely fueled the subsequent uptick in refi activity.
• Mortgage swap spreads saw a notable tightening as steady rates came despite a 9bp increase in the average 10Y swap rate over the week. The 265bp (-8bp) surpasses a recent trough of 267bp for what was its lowest since Apr 2022, having averaged 285bp in Q1 and a rough range of 300 +/-5bp for some months after reciprocal tariff announcements in April prompted more cautious lending standards.