FRM Update

January 18, 2022

Current Yield Spreads

The Treasury market continued to sell-off last week as investors digested the latest CPI print and continued hawkish talk from Fed officials. The December Consumer Price Index increased a seasonally adjusted 0.5% from the previous month, which was a small reduction from the monthly increases in October and November. However, the year-over-year rate rose 7.0%, which was the largest annual gain since 1982. Yields made new cycle highs as the 2-year Treasury yield climbed 10 bps to .97% and the 10-year Treasury increased 2 bps to 1.78%.  This morning the 2-year has pushed higher by 5 bps to 1.02%, as the odds of 100 bps of tightening is priced into the Fed Funds futures market this year.

The mortgage passthrough market underperformed last week and was unable to keep pace with Treasury market as investors continued to adjust to less support (buying) from the Fed. Nominal yield spreads on 15-year MBS widened 8 bps to 21 bps, while yield spreads on 30-year MBS to Treasurys with similar duration widened 7 bps to 64 bps.

Trading Activity

Buying activity was solid last week with investors taking advantage of the sell-off in Treasurys and MBS spread widening.  Most of the buying activity continued to be focused on 20-year 2.0s and 2.5s. There was also steady demand for 10-year 1.5s and 2.0s and 15-year 2.0s.

Mortgage Rates & Applications

Bankrate’s most recent survey (week ending 1/14) shows that mortgage rates are now at the highest levels seen since June 2020. Last week the 30-year rate increased 8 bps to 3.52% and the 15-year rose 15 bps to 2.84%.  The 30-year rate has now increased 33 bps during the past three weeks. Mortgage applications for the week ending January 7 rose 1.4%.  After dropping sharply in the previous week, purchase apps regained 2.2% while refi apps slipped another 0.1%.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks

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