January 6, 2020
MBS couldn’t keep pace with comparable Treasurys last week, as 15-year widened 3 bps to 63 bps and 30-year widened by 2 bps to 94 bps. While yield spreads are off their highs from August, the widest gap since 2013, spreads remain compelling compared to levels observed in recent years.
During the past several weeks of trading, investors have focused primarily on 15- and 20-year passthroughs with lower coupons. Activity in 15-year pools has been in 2.0s to 3.0s, while the focus in 20-year pools has been in 2.5s & 3.0s. Demand has also been strong for non-deliverable pools collateralized by jumbo loans. However, spreads have tightened significantly over the past couple of weeks (10-12 ticks), which has diminished the appeal of owning slightly less-liquid collateral.
Mortgage Rates and Refinance Activity
Mortgage rates drifted higher for the week ended December 27th, with 15-year rising 5 bps to 3.24% and 30-year increasing 3 bps to 3.78%. For the year, 30-year rates declined 82 bps and 15-year rates fell by 53 bps.
The modest increase in mortgage rates may have dampened demand for refinances, as the overall mortgage application volume fell 5.3% for the week ended December 20th compared to the previous week. Applications to refinance a home loan fell 5% from the previous week but were still 128% higher than a year ago. The refinance share of mortgage activity increased to 62.6% of total applications from 62.2% the previous week. The Mortgage Bankers Association’s refinance index remains elevated but is nearly one-third lower than its peak in August.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP