FRM Update

June 21, 2021



Current Yield Spreads

Last week the FOMC voted unanimously to keep its policy rate range at 0.00-0.25% and indicated it would continue to purchase $80bn Treasury and $40bn MBS securities per month until “substantial further progress” has been made. However, Chairman Powell mentioned the taper path will be discussed at a future meeting and the dot plots showed evidence of a clear shift in posture with officials now increasingly projecting rate increases in 2022 and 2023.  As of the March SEP, only four officials believed it would be appropriate to hike rates in 2022 and seven believed it would be appropriate by year-end 2023.  The median forecast for both years was that rates would remain unchanged at 0.00-0.25%.  As of the May dots, seven officials now believe it will be appropriate to hike rates before the end of 2022 and thirteen officials believe it will be appropriate by the end of 2023.  The median forecast for year-end 2023 was increased by 50 basis points to a range of 0.50%-0.75%.

The market reaction to the Fed’s statement resulted in a flattening curve (2/10s declined 11 bps to 118 bps) and slight spread widening in the 15-year MBS sector.  Spreads on 15-year MBS (1.5s) widened 4 bps to 49 bps, while spreads for 30-year MBS (2.0s) tightened 5 bps to 50 bps.  The cheaper 15-year market boosted trading activity as investors took advantage of higher projected yields as the 5-year Treasury was 14 bps higher on the week.



Trading Activity

The summary below reflects purchase activity from the previous week.  The most active trades were UMBS 15-year 1.5s and 20-year 2.0s.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:


Mortgage Rates and Applications

U.S. mortgage rates increased sharply for the week ending 6/18 according to Bankrate.com.  The 15-year mortgage rose 7 bps to 2.43% and the 30-year mortgage rate increased by 9 bps to 3.17%.  The Mortgage Bankers Association reported that refinance applications rose 5.5% for the week ended 6/11, after declining 5.1% the previous week.  The refi index remains relatively high but has slipped nearly 37% since the end of January as mortgage rates have increased.



The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) declined 3 bps to 1.28%. The spread has narrowed 22 bps this year and 66 bps since August 2020.  Lenders pushed the spread down to 1.00% in November 2018 as interest rates were peaking during the last rising rate cycle.




Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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