FRM Update

March 23, 2020


Nominal spreads on current coupon MBS compared to Treasurys were mixed last week, as 15-year increased 31 bps to 141 bps, while spreads on 30-year were stable at 153 bps. Spreads were volatile during the week reflecting a lack of consistent liquidity. The Fed purchased $68bn of mortgage securities last week as part of their plan to inject liquidity into the market.  The plan was to purchase at least $200bn of mortgage securities in the coming weeks/months. However, this morning the Fed has announced the purchases of Treasury and mortgage securities that it approved one week ago are essentially unlimited, and it said it would buy $375bn in Treasury securities and $250bn in mortgage securities this week.  This should put downward pressure on spreads and reduce market volatility.

Financial institutions took advantage of the market dislocation and added new positions at a feverish pace.  The activity was wide-spread and included the following:

Mortgage Rates and Refinance Activity

Mortgage rates were mixed last week, with 15-year increasing 9 bps to 3.44% and 30-year decreasing 15 bps to 3.97%.  Mortgage rates remain high relative to swaps and Treasurys as lenders have essentially increased offering rates as a method to handle overwhelming refinancing demand. Mortgage applications to purchase a home fell 1% for the week but were 11% higher than a year ago.  Applications to refinance a home loan fell 10% last week from the previous week but were still 402% higher than a year ago.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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