August 30, 2021
Current Yield Spreads
The long-awaited speech by Fed Chairman Powell at Jackson Hole took place on Friday. Powell indicated that if job growth remains strong, tapering is likely to begin this year; however, he also more deeply defended his position that strong inflation will ultimately prove transitory and reiterated that tapering has no signal for rate hikes which are subject to a “substantially more stringent test”. MBS yield spreads tightened modestly following the speech.
For the week, nominal yield spreads on 15-year MBS (1.5s) to Treasurys with similar duration tightened by 2 bps to 39 bps, while yield spreads on 30-year MBS (2.0s) tightened 4 bps to 70 bps.
The summary below reflects customer purchase activity from the previous week. The potential for higher Treasury yields and wider MBS yield spreads has most investors sticking to defensive products with heavy projected front-end cash flow. Activity was led by UMBS 15-year 2.0s and UMBS 20-year 2.0s.
- UMBS 10-year 1.5s & 2.0s
- UMBS 15-year 1.0s to 2.0s (2.0s the most traded)
- UMBS 20-year 1.5s to 2.5s (2.0s the most traded)
- UMBS 30-year 2.0s and 2.5s
- FNMA 30-year Jumbo 2.0s to 2.5s (2.0s the most traded)
- GNMA 15-year Jumbo 2.5s
- GNMA 30-year Jumbo 2.0s
- Low loan balance pools with a maximum loan amount ranging from $85k -$250k, and pools with NY & TX collateral
- Custom CRA Pools
Mortgage Rates and Applications
U.S. mortgage rates rose last week according to Bankrate.com, but rates remain at historically low levels. Both the 15- and 30-year mortgage rates increased 7 bps to 2.38% and 3.08%, respectively. Mortgage applications for the week ending August 20 rose 1.6%, according to the Mortgage Bankers Association’s seasonally adjusted index. The average 30-year mortgage rate dropped 4 bps to 3.01% during the survey period. Refi applications rose 0.9% WoW while purchase applications increased 3.0%.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP