Prepay Commentary

January 2020 MBS Prepayment Speeds



January factors are out and, overall, prepayment speeds were quite stable compared to the prior month. In the largest vintages, there was rarely a change up or down of even 1 CPR. Where we did see some slightly-larger increases, relatively speaking, were in GNMA 3.5s and 4.0s, the 2019 vintages to be more specific. 2019 vintage 3.5s increased from 5.6 to 13.9 CPR month-over-month while 4.0s increased from 27.2 to 38.5.


Notables


Food for Thought

It’s not necessarily surprising spreads have widened over the past year on MBS as prepayments have increased. Naturally, investors want extra compensation for prepayments to the extent they could affect their return. However, the degree to which spreads have widened out has certainly captured the attention of many investors.



Mortgage Rates

Based on the Freddie Mac Primary Mortgage Market Survey, if we look back over the past year 30- and 15-year fixed-rate mortgage rates are 23 and 16 bps above their respective lows and are slightly higher since last month.




What We’re Reading

WSJ: Mortgage Bonds Attract Investors in Low-Yield World

“Some debt investors are taking a second look at mortgage bonds after a summer slump pushed yields on the securities to their highest levels in years relative to U.S. Treasurys.”


CNBC: The shortage of homes for sale is getting much worse, even in luxury

“Short supply signals higher prices ahead, especially as demand picks up in the new year. Mortgage rates are still very low, giving buyers more purchasing power and fueling that demand further.”












UMBS Speeds by Vintage Year

FGLMC Speeds by Vintage Year

GNMA Speeds by Vintage Year



Kevin A. Smith, CFA

SVP, Director Investment Product Strategies

Vining Sparks

KSmith@viningsparks.com


Adam Hofer

Analyst, Investment Product Strategies

Vining Sparks

AHofer@viningsparks.com


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