FRM Update

March 16, 2020


There was significant volatility in the Agency MBS market last week due to an abundance of new supply. The lack of market support and resulting dislocation sent spreads meaningfully wider nearly every day of the week, which created attractive buying opportunities for active investors. On a week-over-week basis, nominal spreads on current coupon MBS compared to Treasurys widened over 40 bps, to levels unseen in years. Spreads on 15-year increased 42 bps to 110 bps, while spreads on 30-year increased 43 bps to 153 bps.

Today spreads are tightening as a result of the Fed’s announcement to purchase at least $500bn in Treasury securities and at least $200bn of Agency MBS. The move appears designed to both lower rates and spreads and provide additional liquidity. These purchases are expected to begin this week.

It was a very active week in terms of investing activity. Investors focused on adding 15-year 2.0s and 2.5s and 20-year 2.5s and 3.0s.  There’s was also strong activity in non-deliverable pools collateralized by jumbo loans (GNMA & FNMA 30-year 3.0s and 3.5s.)

Mortgage Rates and Refinance Activity

Mortgage rates increased significantly last week, with 15-year climbing 37 bps to 3.35% and 30-year increasing 46 bps to 4.12%.  Lenders have essentially increased offering rates as a method to handle overwhelming refinancing demand. Applications to refinance a home loan jumped 79% last week compared with the previous week.  Applications for home purchase loans were up 6% for the week.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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