January 16, 2018
Mortgage yield spreads versus Treasuries were generally unchanged last week as Treasury yields moved higher across the curve. This increase in MBS yields drove mortgage rates nine basis points higher. Mortgage applications for the week ending January 5 rose 8.3% as purchase apps increased 5.0% and refi apps climbed 11.4%, even though mortgage rates increased during the reference period. Refi apps remain very low: the four-week refi average is now at its second lowest level since 2008.
- Mortgage yield spreads were mixed last week:
- 15-year MBS yield spreads ended the week 1bp tighter to 1bp wider to Treasuries and swaps.
- 30-year MBS yield spreads ended the week 1 to 2bps tighter to Treasuries and swaps.
- Curve slope measured by 2- and 10-year Treasuries steepened 3bp last week from 51 to 54bps; however, in early morning trading Monday, the slope flattened to 52bps.
- Investors were active last week in new and seasoned 15yr MBS, primarily in 2% to 3.5% coupons.
- Investors were also active in seasoned 30yr MBS, primarily in 3.5% and 4% coupons, which offer attractive yields and spreads in the sector and perform well in a flattening yield curve environment.
- A combination of higher yield versus agency bullets and deference to convexity inspired activity in seasoned 5yr multi-family FNMA DUS and in uncapped floating rate FNMA ACE bonds, taking advantage of higher yield opportunities in LIBOR rates and attractive floating rate yields.
CMO spreads were unchanged to slightly wider in various types of structures last week, while investor activity was slower than normal due to the focus on year-end close. Investor focus was primarily in full coupon front sequential structures off of 30yr 3% jumbo collateral.
Mortgage Rates and Refinance Activity
- Mortgage rates rose last week.
- 15-year mortgage rates rose 9bps to 3.31% (exceeding prior 12-month peak of 3.30%), 21bps above the 12-month average of 3.10%.
- 30-year mortgage rates rose 9bps to 3.96%, 8bp above the 12-month average of 3.88%.
- 15-year fixed mortgage rates are 13bps higher than the prior year, while 30-year fixed mortgage rates are 7bps lower than the prior year.
- Fixed mortgage rates were range bound in 2017 resulting in historically low levels of prepayment activity.
- 15-year: Low 2.94%; High 3.30%; Range 36bps; Average 3.10%
- 30-year: Low 3.67%; High 4.16%; Range 49bps; Average 3.88%
- Mortgage applications for the week ending January 5 rose 8.3% as purchase apps increased 5.0% and refi apps climbed 11.4% even as mortgage rates actually ticked up during the reference week. One explanation for the increase in applications would be the passage of the tax bill in the week preceding and the implications for mortgage interest deductions, etc. Purchase apps remain high on a 4w/4w basis, while refi apps, in contrast, remain very low. The four-week refi average is now at its second lowest level since 2008, only surpassed by one report back in January 2017.
- The MBA Refi Index rose 11.4% to 1259, but remains below its 12-month average of 1340. Refinance activity continues to be historically low and range-bound. The Index reached its prior year high the week ending September 8th at 1637; however, the Refi Index ended 2017 falling twelve of the last sixteen weeks.
Dan Stimpson, CPA
Senior Vice President