FRM Update

June 19, 2017



Activity was light last week in both the MBS and CMO sectors as bonds rallied on Wednesday after inflation data fell short of estimates for the third consecutive month.  The mid-week Fed meeting offered additional details on QE tapering and the unwind of MBS holdings.  The MBS market displayed almost no measurable response as MBS yield spreads only widened a few basis points and mortgage rates rose 2bps from the lowest levels this year.  The MBA mortgage applications index rose 2.8% last week to the highest level since November 2016.  While refi apps increased 9.2% last week, refi activity and MBS prepayments are still relatively low in reference to the last several years.

MBS






CMOs

Trading activity in CMOs was also light last week as the availability of specific structures continues to limit activity with issuance remaining quite weak and finding specific structures to match inquiries remains a challenge.  Yield spreads in CMOs widened slightly last week, similar to the MBS sector.  Depositories were focused on stable structures with 4- to 6-year average lives.

Rates and Refis



Housing

The run of disappointing housing data continued last week with homebuilder confidence unexpectedly dropping 2 points in June. Housing starts and building permits were much weaker than expected in May.


 

Despite 30-year mortgage rates dropping approximately 40bps year-to-date, the trends remain decidedly negative for new construction.  Housing starts dropped 5.5% to their lowest level of the year versus an expected increase of 4.1%.  Multi-family starts fell 9.7% and are now at their second lowest level since 2013.  Total starts are now down 17.8% since last October.  Building permits were expected to rise 1.7% in May but dropped 4.9%.  Single family permits fell 1.9% and multi-family permits fell 10.4%.  Total building permits are now down 10.0% since the beginning of the year.

 

 

 


Dan Stimpson, CPA

Senior Vice President

Vining Sparks

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120