June 7, 2021
Current Yield Spreads
Nominal MBS yield spreads to comparable Treasurys ended the week mixed. Spreads on 15-year MBS tightened 2 bps to 45 bps, while spreads for 30-year MBS widened 2 bps to 53 bps. Spreads were supported by the prepayment report released late Friday. The May prepayment report revealed that Fannie 30-year aggregate speeds fell approximately 16% as expected. This follows the April decline of 23%. The decrease can be partially attributed to a one-day decline in available business days during May (20) compared to April (21). Our complete commentary on the prepayment report can be found here.
The summary below reflects purchase activity from the previous week. Investors focused on 1.5s and 2.0s in the 15- and 20-year sectors and collateral with prepayment protection.
- UMBS 10-year 1.5s to 2.5s
- UMBS 15-year 1.0s to 2.0s (1.5s the most traded)
- UMBS 20-year 1.5s to 4.0s (1.5s the most traded)
- UMBS 30-year 1.5s to 2.5s (2.5s the most traded)
- FNMA 30-year Jumbo 2.0s & 2.5s
- GNMA 15-year Jumbo 1.5s & 2.0s
- GNMA 30-year Jumbo 3.5s
- 15-year 1.5s and 2.0s and 20-year 2.0s LLB Pools ($85k -$150k max loan size) and NY collateral
- Custom CRA Pools
Mortgage Rates and Applications
U.S. mortgage rates were relatively stable last week according to Bankrate.com. The 15-year mortgage rate remained at 2.37% and the 30-year mortgage rate increased by 2 bps to 3.10%. The 30-year mortgage rate has increased 20 bps this year but is 40 bps lower than the same time last year.
The latest report from the Mortgage Bankers Association showed mortgage applications fell another 4.0% on a 3.1% drop in purchase applications and a 4.6% decline in refinance applications. Purchase applications are now down 23% from their January average and refinance applications are down 34%. While the housing dynamics remain a net positive, the headwinds are building and are evident in the leading indicators of activity.
The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) inched up 2 bps to 1.32%. The spread has compressed 18 bps this year, with most of the move coming in February. Lenders have room to narrow the spread further to keep their pipelines full as the 5-year average is 1.20%.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP