FRM Update

April 10, 2017

Trading activity across the MBS and CMO sectors improved last week, but remained light as the mortgage market continues to trade in a tight range with minimal changes in yield spreads even as the Fed discusses the potential unwinding of QE. Yield spreads in 15yr and 30yr fixed MBS were mixed last week: slightly tighter to Treasuries and slightly wider to swaps. 30yr mortgage rates fell another 4bps last week and have declined 22bps this year. Mortgage applications declined for the third consecutive week falling 1.6% as refinance applications fell 4.2%. Technical and seasonal factors caused prepayment speeds to increase in March, but speeds were slightly slower than expected.  Day count this month should more than offset the seasonal increase in home sales, and April prepayment speeds are expected to slow down.








Trading activity in CMOs improved last week, but remains on the lighter side as the availability of specific structures continues to limit activity with issuance remaining quite weak. Bid list inquiries and swap activity improved in odd lot clean-ups. VADM structures with 4 to 6-year weighted average lives were among the focus positions for depositories.

Rates and Refis




March Prepayment Speeds

Slightly slower than expected prepayment speeds occurred last month. In nominal terms, much faster prepayments occurred in March than in February. However, technical and seasonal factors caused this increase. While March did post the first monthly overall prepayment speed increase in six months, the increase should not be viewed as a reversal of what should be a long-term trend toward gradually slowing prepayment speeds absent a decline in mortgage rates or significant changes at the mortgage GSEs. For additional prepayment commentary and charts, click here.




Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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