FRM Update

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.

Trading Activity

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.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

U.S. mortgage rates were relatively stable last week according to  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

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.
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