FRM Update

August 14, 2017

Mortgage yield spreads widened a couple of basis points last week as Treasuries rallied on increased geopolitical concerns. Mortgage rates moved lower again last week, while mortgage application activity increased for purchase and refinance applications. Fed’s Evans said a September announcement of balance sheet normalization is reasonable, but recent inflation weakness raises questions about the overall outlook.





Trading activity in CMOs was on the slower side and yield spreads in CMOs were generally unchanged to slightly wider last week. Depositories continue to focus on stable structures with 4- to 6-year average lives.


Rates and Refis

Fed Doves Concerned about Weak Inflation, Still Favor September Balance Sheet Normalization Plan:  Chicago Fed Bank President Evans warned on the low rate of inflation recently saying that undershooting 2% inflation could cost more than overshooting the target. While he still believes it is reasonable to expect inflation to reach 2% over the next few years, the recent below-target readings have been meaningful enough that he is questioning the outlook. He reiterated that the FOMC should be “very careful” going forward.

St. Louis Fed Bank President Bullard raised the bar in a Bloomberg interview saying the FOMC does not need to be pre-emptive with rate hikes amidst weak inflation, adding that he’s not very optimistic on inflation gains this year. However, both regional bank presidents affirmed their support of beginning balance sheet adjustments in September.




Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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