February 5, 2018
Mortgage related security yields increased again last week continuing the trend higher this year, as treasury yields and mortgage rates have pushed higher. Mortgage yields are currently in the upper end of the trading range so far for 2018. This increase in MBS yields drove 30-year mortgage rates 20bps higher last week and 45bps higher this year. The MBA Refi Index fell 2.9% to 1288 and remains slightly below its 12-month average of 1346. Refinance activity continues to be historically low and range-bound. Pending home sales and prices continue to push higher, with prices at the fastest rate of growth in almost four years.
- Mortgage yield spreads widened again last week, continuing the widening trend experienced over the last month:
- 15-year MBS yield spreads ended the week 2 to 5bps wider to Treasuries, and widened 1 to 2bps to swaps.
- 30-year MBS yield spreads ended the week 1 to 2bps wider to Treasuries and were unchanged to swaps.
- Curve slope measured by 2- and 10-year Treasuries steepened 15bps last week from 54 to 69bps, the largest weekly steepening since the U.S. presidential election.
- Investors were active in seasoned 30yr MBS, primarily in 3.5% coupons in HLTV collateral, which offer attractive yields and spreads in the sector.
- Investors were also active in seasoned 20yr MBS, primarily in 3% and 3.5% coupons and in 15yr MBS, with coupons ranging from 2% to 3.5%.
- A combination of higher yield versus agency bullets and deference to convexity inspired activity in new and seasoned multi-family FNMA DUS and Freddie K’s.
- Investors also remain active in uncapped floating rate multi-family bonds, taking advantage of higher yield opportunities in LIBOR rates and attractive floating rate yields.
CMO yields have increased, and for typical bank-type structures yields of 3.00% or higher are attainable. CMO yield spreads tightened a couple of basis points in various types of structures last week. Investor activity is focused on structures that offer 3% yields and weighted average lives around five years in front end sequential and VADM structures.
Mortgage Rates and Refinance Activity
- Mortgage rates rose again last week, continuing a trend higher in 2018.
- 15-year mortgage rates rose 17bps to 3.63%, 51bps above the 12-month average of 3.12%.
- 30-year mortgage rates rose 20bps to 4.30%, 42bp above the 12-month average of 3.88%.
- 15-year mortgage rates have risen 43bps in 2018, while 30-year mortgage rates are up 45bps YTD.
- Mortgage applications for the week ending January 26 fell 2.6% after rising 4.5% the prior week, falling for the first time in almost a month. Purchase apps fell 3.4% and refi apps declined 2.9% after rising 0.9% the prior week.
- The MBA Refi Index fell for the first time in almost a month, falling 2.9% to 1288, and is slightly below its 12-month average of 1346. Refinance activity continues to be historically low and range-bound.
Three reports on housing were released last week and all three showed increased activity or levels for the month. Overall construction spending was weaker than expected to close 2017, as better‐than‐expected December activity was offset by negative revisions to the prior two months. Pending home sales and prices continue to push higher, with prices at the fastest rate of growth in almost four years.
Dan Stimpson, CPA
Senior Vice President