February 18, 2020
Nominal spreads on current coupon MBS compared to Treasurys were mixed last week, with 15-year widening 3 bps to 60 bps and 30-year holding steady at 95 bps. Z-spreads on 15-year 2.5s have improved in recent weeks and look relatively attractive, having risen to 60 bps from a low of 46 bps near the beginning of the year.
The Treasury market rally has generated strong two-way flow (buying and selling). Financial institutions have been active repositioning (primarily extension swaps) and taking gains. The beginning of the year is always conducive to repositioning as you have the entire year available to realize the impact from gains and/or losses.
Investors were active last week and added the following:
- 15-Year 2.5s
- 20-Year 3.0s
- New and seasoned 30-Year 2.5s to 4.0s
- 30-Year Jumbo 3.5s
- Seasoned 15-Year Jumbo 2.5s
Mortgage Rates and Refinance Activity
Mortgage rates were relatively stable last week, with 15-year increasing 1 bp to 3.13% and 30-year increasing 2 bps to 3.64%. Low rates continue to stimulate the housing market, but mostly with current homeowners looking to refinance. Total mortgage application volume increased 1.1% compared with the previous week. Refinance demand drove the volume rising 5% for the week and was 207% higher than the same week one year ago.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP