FRM Update

June 10, 2019


Mortgages outperformed Treasurys during the past week as yield spreads on current production MBS to Treasurys tightened. The 15-year tightened 2 bp to 48 bps, while the 30-year tightened 5bps to 67 bps.

June-released factors showed that May fixed-rate prepayments increased for all three agencies for the fourth consecutive month. The increases were not quite as large as March and April, but still relatively substantial.  Regarding speeds next month, it seems reasonable to expect prepays to more or less remain at current levels.  In the following month though, given the recent, and somewhat sudden decline in rates, it’s possible we could see further increases.  Please click here for a complete commentary on June MBS prepayment speeds.

The improvement in valuations has been a catalyst for bond swap activity as investors have been active with dispositions of lower performing securities.  For reinvestment, the increase in prepayment speeds coupled with the significant decline in rates has investors focusing on lower coupon pools with less negative convexity profiles.

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

Mortgage Rates and Refinance Activity

Benchmark mortgage rates were relatively stable last week. 15-year mortgage rates decreased 2 bps to 3.27%, while 30-year mortgage were firm at 4.03%.

After declining 3.3% the previous week, mortgage application volume increased 1.5% on an adjusted basis during the week ending May 31st.  The results include an adjustment for the Memorial Day Holiday.  Applications for refinancing increased 6.0%, while applications for purchases decreased 2.0%. The refinance share of mortgage activity increased to 42.2% of total applications, up from 39.7% the previous week.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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