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:
- 15-year 2.0s to 4.0s
- 20-year 2.5s and 3.0s
- Jumbo FNCK 30-year 2.5s and 3.0s
- Jumbo G2JM 30-year 2.5s and 3.0s
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