FRM Update

July 29, 2019


Yield spreads for current production coupon MBS to Treasurys moved modestly wider last week. 15-year MBS widened by 3 bps to 55 bps while 30-year widened 1 bp to 74 bps. Mortgage spreads remain relatively wide versus historical levels (see Z-Spread graph below).

Activity over the past week has been concentrated in 15- and 20-year MBS and 30-year pools collateralized by non-conforming jumbo loans (3.0s and 3.5s).  Investors continue to focus on lower coupon pools because of prepayment risk, despite the fact that higher coupons offer superior projected option-adjusted spreads.

The following is a list of actively traded sectors and coupons:

Mortgage Rates and Refinance Activity

Benchmark mortgage rates were mixed last week. 15-year mortgage rates declined 3 bps to 3.20%, while 30-year mortgage rates increased 3 bps to 3.87%.

Mortgage applications fell 1.9% for the week ending July 19 on a 1.6% decline in purchase apps and a 2.1% increase in refis.  Mortgage rates fell during the reference week back to within 4 bps of the recently set, two-year low.  The 30-year rate is now down 1.09% since November.  Despite the precipitous drop in rates, housing activity has struggled to reignite with most of the major sales and price metrics remaining sluggish.  On a positive note, the 4-week moving average for mortgage purchase applications is up 20% since November and the average for refis is now up 127%.  Nonetheless, activity remains tame versus historical norms.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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