March 28, 2022
Current Yield Spreads
Treasury yields continued to climb higher last week as hawkish rhetoric from the Fed led markets to price an even more aggressive tightening path ahead. The 2- and 5-year Treasury yields increased by 34 bps and 40 bps, respectively. These were the largest weekly increases in more than a decade. The Treasury sell-off led to a mixed response in the MBS market. Nominal yield spreads on 15-year MBS current coupon production remained at 36 bps, while yield spreads on 30-year MBS to Treasurys with similar duration widened sharply by 8 bps to 103 bps.
The summary below reflects customer purchase activity from the previous week. Activity for the week was robust and focused on UMBS 20-year 3.0s followed by 2.5s. The 20-year sector is inexpensive relative to the 15-year sector and 2.5s and 3.0s are trading at a slight discount. The strong demand for 20-year 3.0s has depleted inventories and March settlement is becoming a challenge. The remaining activity in TBA-eligible passthroughs was split almost evenly between the 15- and 30-year sectors. There was also demand for non-deliverable pools with higher coupons (15-year Jumbo 3.0s & 30-year Jumbo 2.5s to 4.0s).
Mortgage Rates & Applications
Mortgage rates moved higher last week as the 15-year increased 10 bps to 3.88% and the 30-year rate increased 1 bp to 4.56%. The benchmark 30-year interest rate has increased 130 bps this year. Mortgage applications slid 8.1% in the week ended March 18, matching the second biggest weekly decline in more than a year, as purchase applications slipped 1.5% and refinancing activity sank 14.4%. Purchase applications remain in the bottom half of the 12-month range while the refinance applications index has now reached its lowest level since December 2019.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies