FRM Update

June 12, 2017



Activity improved last week in both the MBS and CMO sectors as bonds sold off on Thursday and Friday after Comey’s Senate testimony.  Yield spreads tightened a couple of basis points and mortgage rates fell 3-5bps to the lowest levels this year.  Mortgage applications rose 7.1% on increases in both purchase and refinance applications.  Purchase applications increased 10% to the highest level since May 2010.  MBS prepayment speeds increased between a range of 16 to 18% as expected in May in line with an increase in day count.  Prepayments are still relatively low in reference to the last several years.  MBS prepayments next month should either hold steady or increase slightly due to a combination of technical and seasonal factors.  For additional prepayment commentary and charts, please see our May Prepayment Commentary.

 

MBS





CMOs

Trading activity in CMOs improved last week to volume levels not seen in a month and a half.  Yield spreads in CMOs tightened a couple of basis point last week, similar to the MBS sector. Depositories were focused on PAC and sequential structures, conventional and jumbo collateral, ranging primarily from 4- to 5-year average lives with coupons between 2.5% and 4%.

 

Rates and Refis


May Prepayment Speeds

With the exception of a few out-of-the-money coupons, all FNMA, FHLMC, and GNMA fixed-rate MBS prepayment speeds increased between a range of 16 to 18% as expected.  Many traders and investors anticipated these prepayment increases, as day count alone for the month of May should have caused a prepay jump of 15.7%.  Prepayments are still relatively low in reference to the last several years with average 15- and 30-year mortgage rates unchanged from April to May.  As June has the same number of collection days as May, MBS prepayments next month should either hold steady or increase slightly due to a combination of technical and seasonal factors.  For additional prepayment commentary and charts, please see our May Prepayment Commentary.

 


Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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