June 14, 2021
Current Yield Spreads
Current coupon MBS yield spreads to comparable Treasurys ended the week mixed. Spreads on 15-year MBS (1.5s) were stable at 45 bps, while spreads for 30-year MBS (2.0s) widened 2 bps to 55 bps. 30-year 1.5s were under pressure for the second consecutive week and widened 10 bps, likely because the Fed discontinued buying this coupon and investors favor lower duration and extension protection.
The summary below reflects purchase activity from the previous week. The most active sectors were UMBS 20-year 1.5s and 30-year 2.0s, followed by FNMA 30-year Jumbo 2.0s.
- UMBS 10-year 1.5s & 2.0s
- UMBS 15-year 1.0s to 2.5s (1.0s the most traded)
- UMBS 20-year 1.5s to 3.0s (1.5s the most traded)
- UMBS 30-year 1.5s to 2.0s (25-year 2.0s the most traded)
- FNMA 30-year Jumbo 1.5s to 2.5s
- GNMA 15-year Jumbo 2.0s & 3.5s
- 15-year 1.5s and 2.0s and 20-year 2.0s LLB Pools ($85k -$175k max loan size) and NY/FL collateral
- Custom CRA Pools
Mortgage Rates and Applications
U.S. mortgage rates inched lower last week according to Bankrate.com. The 15-year mortgage slipped 1 bp to 2.36% and the 30-year mortgage rate decreased by 2 bps to 3.08%. The 30-year mortgage rate is up from the January all-time low of 2.85% but remains historically low.
According to the Mortgage Bankers Association, mortgage applications for the week ending June 4 fell 3.1% as refinance applications declined 5.1% and purchase applications ticked up 0.3%. Since January, purchase applications are now down 23% while refinance applications are down 37%. However, prepayments remain historically high.
The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) declined 1 bp to 1.31%. The spread has narrowed 19 bps this year. Lenders have room to tighten their profit margins further as the pace of refinance activity has slowed but staffing levels remain robust.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP