July 17, 2017
Mortgage yield spreads were unchanged to slightly wider last week as Treasury yields moved lower in response to a continuation of weaker than expected inflation data. Mortgage rates rose last week for the second consecutive week and 30-year mortgage rates pushed above 4%. Mortgage applications fell 7.4% on a 2.5% drop in purchase apps and a 13.0% drop in refi apps, the largest weekly decline in refi apps this year.
- Mortgage yield spreads were unchanged to slightly wider last week:
- 15-year and 30-year MBS yield spreads ended the week unchanged to 2bps wider to Treasuries and swaps
- The Treasury curve has steepened 17bps over the last three weeks from 79 to 96bps between 2- and 10-year Treasuries. Curve slope flattened 2bps last week from 98 to 96bps.
- Investors were active last week in newer production 15yr MBS, primarily in 3.5% coupons.
- A combination of higher yield and deference to convexity inspired activity in multi-family FNMA DUS with 7yr maturities.
Trading activity in CMOs was steady as yield spreads in CMOs were generally unchanged last week. The recent steeping of the curve should be beneficial in increasing supply from new CMO production. Depositories were focused on stable structures with 4- to 6-year average lives.
- Full coupon front sequential structures off of 30yr 3.5% collateral (“3.5 squared”) remained popular with financial institutions with wider spreads and better supply than many shorter structures.
- Investors were also active in VADM’s offering extension protection from structure and shorter stated final maturities.
Rates and Refis
- Mortgage rates rose last week for the second consecutive week and 30-year mortgage rates pushed above 4% for the first time in almost two months.
- 15-year mortgage rates increased 7bps to 3.29%
- 30-year mortgage rates rose 7bps to 4.03%
- 15- and 30-year fixed mortgage rates have now fallen 26 and 29bps respectively year-to-date; however; mortgage rates are 57 and 61bps higher than this time last year.
- Mortgage applications for the week ending July 7 fell 7.4% on a 2.5% drop in purchase apps and a 13.0% drop in refi apps; the largest weekly decline in refi apps this year. The decline in purchase apps pulled the 4-week moving average (eliminating some of the WoW noise) lower, but the trend remains positive. The decline in refi apps pulled its 4-week moving average down 4.9%. However, refi apps remain 18% higher than their low point back in January, albeit at still-low levels.
- The MBA Refi Index reveals that burnout dominates an unincentivized population of mortgage holders this year. After increasing for three consecutive weeks, the Index has declined the last three weeks to 1211. Refinance activity remains at historically low levels.
Dan Stimpson, CPA
Senior Vice President