FRM Update

February 12, 2018



Mortgage-related security yield spreads versus Treasuries widened again last week, as volatility continues during the selloff in the financial markets. Mortgage rates were up one basis point last week and have increased 45bps this year. MBS prepayments slowed for the third consecutive month, declining for seasoned and new production and for high and low coupons. Weighing all factors involved, investors should expect slower prepayments again next month. For additional prepayment commentary and charts, please see our January MBS Prepayment Commentary.

 

MBS

 





CMOs

CMO yields have increased during the last two weeks, and for typical bank-type structures yields of 3.00% or higher are attainable.  CMO yield spreads widened by one to two basis points on shorter structures, but the spread widening was more pronounced and in line with the widening in fixed MBS in longer structures. Investor activity is focused on structures that offer 3% yields and weighted average lives around five years in sequential and VADM structures.

 

 

 

Mortgage Rates and Refinance Activity

 

 

 

January MBS Prepayment Speeds

MBS prepayments slowed for the third consecutive month, declining for seasoned and new production and for high and low coupons. While most projections called for a slowdown, speeds fell more than expected. For the pertinent application period mortgage rates ended December near the highs for the prior six months. Seasonal factors added to the braking impact of the slow upward grind in mortgage rates, and the business calendar did nothing to offset these impacts, with one additional business day in January. February has two fewer business days compared to January, which should result in about a 10% decrease. Weighing all factors involved, investors should expect slower prepayments again next month. For additional prepayment commentary and charts, please see our January MBS Prepayment Commentary.

 

 


Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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