FRM Update

July 12, 2021



Current Yield Spreads

Mortgages had a difficult time keeping up with the rate rally in Treasurys last week. The 10-year yield reached a five-month low of 1.25% on Thursday but managed to finish the week down just 7 bps to 1.36%.  Spreads on 15-year MBS (1.5s) and 30-year MBS (2.0s) widened 3 bps to 39 bps and 59 bps, respectively.

The Fed’s June Minutes showed participants said “‘substantial further progress’ was generally seen as not having yet been met”, confirming the current pace of bond purchases is likely to continue. The Fed has bought an average of $119bn per month of MBS this year, adding a net $40bn per month to its balance sheet.



Trading Activity

Trading activity slowed last week due to the holiday-shortened week and decline in available yields. The summary below reflects purchase activity from the previous week.  Investors favored lower coupons/premiums with the most active sectors being UMBS 15- and 20-year 1.5s.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:


Mortgage Rates and Applications

U.S. mortgage rates were mixed for the week according to Bankrate.com.  The 15-year mortgage was higher by 3 bps to 2.42% and the 30-year mortgage rate declined 1 bp to 3.06%.  In another prominent rate survey by Freddie Mac, the 30-year rate declined 8 basis points to 2.90%, its biggest weekly decline since April 15. The current rate is at its lowest level since February 18.

Mortgage applications for the week ending July 2 fell another 1.8% despite a decline in mortgage rates during the measurement period.  Purchase applications fell another 1.1% and are now down 25.5% from January and the lowest level since May 2020.  Refi applications, a leading indicator of future prepayment speeds, fell 2.3% and are down 38.6% since January.

June prepayment speeds were reported last week and were consistent with expectations.  FNMA 30-year paid 24.6CPR in aggregate, up 5% compared to the previous month. FNMA 15-year paid at 19.3CPR in aggregate, which was an increase of 8% compared to May.  The increase was driven primarily by a two-day increase in day count and lower mortgage rates.  Please see here for our complete commentary on the prepayment report.




Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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