FRM Update

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.

Trading Activity

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.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

U.S. mortgage rates rose last week according to, 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

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