FRM Update

May 24, 2021

Current Yield Spreads

Despite some intra-week volatility, nominal MBS yield spreads to comparable Treasurys ended the week unchanged. Spreads on 15-year MBS held firm at 46 bps, while spreads for 30-year MBS remained at 49 bps.  Spreads remain tight on a historical basis due to the strong support by the Fed and demand from financial institutions with excess liquidity. Support appears to be unwavering based on the latest Federal Reserve minutes from the April 28 meeting that reiterated the bank will continue to purchase “agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee’s maximum-employment and price-stability goals.”

Trading Activity

The summary below reflects purchase activity from the previous week.  Investors focused on the 15- and 20-year sectors with 2.0% coupons and prepayment friction stories (LLB and NY).

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

U.S. mortgage rates were mixed last week according to  The 15-year mortgage rate edged higher by 3 bps to 2.38% and the 30-year mortgage rate declined by 1 bp to 3.04%.  The 30-year mortgage rate is 23 bps higher than it was at the beginning of the year, but still favorable for borrowers, as is evident by the continued strong pace of refi activity.

Mortgage applications increased 1.2% from the previous week, according to the latest report from the Mortgage Bankers Association for the week ending May 14.  Purchase applications fell 4.1%, while the refinance index rose 4.0%, its second week in a row of increases and the fourth out of the last five weeks.

The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) remained at 1.30%. The spread has been stable over the past couple of months but has seen a drawdown of approximately 20 bps this year, with most of the move coming in February. Lenders continue to have room to narrow the spread further as the 5-year average is 1.20%.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120