FRM Update

December 6, 2021

Current Yield Spreads

Mortgages were under pressure last week as Fed Chair Powell said in his Senate testimony that it would be appropriate to consider wrapping up the taper of asset purchases a few months sooner. The Treasury curve flattened significantly in response to the signal for a quicker taper and continued fears about the Omicron variant.  The 2s/10s spread closed at 75 bps on Friday, a decline of 22 bps from the previous week and the sharpest move since November 2011.  The 2-year finished the week up 8.9 bps to 0.59% while the 10-year declined 13 bps to 1.34%.

Nominal yield spreads on 15-year MBS tightened 1 bp to 21 bps, while spreads on 30-year MBS to Treasurys with similar duration widened 8 bps to 62 bps.

Trading Activity

The summary below reflects customer purchase activity from the previous week. UMBS 20-year 2.0s continued to lead purchase activity, followed closely by 20-year 1.5s. The tightening trend of spreads available on 15-year passthroughs has seemingly led many investors to shift buying activity to more defensive positions (10-year passthroughs) or to move further out on the curve where more spread can be found in 20- and 30-year passthroughs.

There’s also been solid two-way flow as depositories have begun year-end repositioning (selling underperforming positions) to improve earnings in future periods.  This is an opportunistic week to execute TBA eligible trades because factors will be released and TBAs have not yet rolled to January.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

Bankrate’s most recent survey shows mortgage rates were stable last week. 15-year rates decreased by 1 bp to 2.51%, while 30-year rates remained at 3.18%. Mortgage applications for the week ending November 26 fell 7.2% on a 14.8% drop in refi applications but another strong gain for purchase applications.  Purchase applications rose 5.1% and are now at their highest weekly level since early-February.  Refis have declined nearly 41% year-over-year.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks

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