FRM Update

December 20, 2021

Current Yield Spreads

Last week the FOMC announced plans to double the pace of reduction of its monthly asset purchases from $15bn to $30bn (beginning in January) and signaled they favor raising interest rates in 2022 at a quicker pace. The Fed is leaning towards three rate hikes next year according to their Summary of Economic Projections with liftoff likely coming sometime after the tapering process concludes in March. The broader Treasury market responded to the Fed update and uncertainty around the Omicron variant with a rally in longer rates (10-year down 7 bps for the week) while the MBS market gave back some of the gains versus Treasurys from the previous week. Nominal yield spreads on 15-year MBS widened 4 bps to 20 bps, while spreads on 30-year MBS to Treasurys with similar duration widened 6 bps to 64 bps. Yield spreads on 30-year MBS are now at an eleven-week high and have increased 12 bps in the last month.

Trading Activity

The summary below reflects customer purchase activity from the previous week. Activity continued to be led by UMBS 20-year 2.0s. Rich valuations on 10- and 15-year passthroughs continue to push investors to longer finals with higher spreads.      

There’s also been consistent two-way flow as depositories are actively repositioning (selling underperforming positions) to improve earnings in future periods.    

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

Bankrate’s most recent survey shows mortgage rates were stable last week and remain historically low. Both 15- and 30-year rates decreased by 1 bp to 2.52% and 3.24%, respectively. Mortgage applications for the week ending December 10 fell 4.0% on a 6.4% decrease in refi apps and a 0.7% increase in purchase apps. Refi apps are now down 48% from January’s average.  Purchase apps, which were down 27% through July, are now down just 12% from January.



Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks

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