August 2, 2021
Current Yield Spreads
The FOMC kept policy unchanged last week, leaving its overnight target rate at 0.00-0.25% with plans of continuing asset purchases of $120 billion per month. The official FOMC statement acknowledged the economy has made progress towards the goals needed to alter asset purchases, but it didn’t provide any new information about a potential timeline. Powell did mention that there’s very little support for tapering MBS purchases in advance of Treasurys.
The dovish FOMC statement and Powell’s comment regarding tapering helped support the MBS sector and yield spreads recovered most of the widening that occurred earlier in the week. For the week yield spreads on 15-year MBS (1.5s) tightened by 1 bp to 37 bps, while yield spreads on 30-year MBS (2.0s) widened 2 bps to 66 bps.
The summary below reflects purchase activity from the previous week. Activity was concentrated in the 20-year sector with low coupons. There was also a pick-up in activity in collateral with prepayment friction (low loan balances, NY, and FL).
- UMBS 10-year 1.5s
- UMBS 15-year 1.5s & 2.0s
- UMBS 20-year 1.5s to 3.0s (1.5s the most traded)
- UMBS 30-year 1.5s and 2.0s
- FNMA 15-year Jumbo 1.5s
- FNMA 30-year Jumbo 1.5s to 2.5s
- NY, FL, and LLB Pools ($85k -$225k max loan size)
- Custom CRA Pools
Mortgage Rates and Applications
U.S. mortgage rates continued to decline last week according to Bankrate.com. Both 15-year and 30- mortgage rates declined 3 bps to 2.98% and 2.28%, respectively. The 15-year rate at 2.28% is at an all-time low.
Mortgage applications for the week ending July 23 rose 5.7%. Pushing applications up was a 9.3% gain in refinance applications. Disappointingly, purchase applications fell another 1.6% and are now down 26% from January.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP