May 10, 2021
Current Yield Spreads
The MBS rally finally reversed course last week as spreads to Treasurys widened modestly from historically tight levels. Spreads on 15-year MBS widened 4 bps to 44 bps, while spreads for 30-year MBS widened 2 bps to 49 bps.
The summary below reflects purchase activity from the previous week. The 20-year sector experienced the most demand as investors focused on 20-year 1.5s and 2.0s.
- UMBS 10-year 1.5s and 2.0s
- UMBS 15-year 1.0s to 2.5s (1.5s the most traded)
- UMBS 20-year 1.5s & 2.0s (1.5s the most traded)
- UMBS 30-year 1.5s to 2.5s (2.0s the most traded)
- FNMA 30-year Jumbo 1.5s & 2.0s
- GNMA 15-year Jumbo 1.5s to 2.5s
- 15-year 1.5s and 2.0s and 20-Year 2.0s LLB Pools ($85k -$200k max loan size) and NY collateral
- Custom CRA Pools
Mortgage Rates and Applications
U.S. mortgage rates ticked downward last week according to Bankrate.com. The 15-year mortgage rate decreased by 5 bps to 2.34% and the 30-year mortgage rate declined by 7 bps to 3.06%. The 30-year mortgage rate has increased 16 bps this year, which is a fraction of the change in 10-year Treasury yields that have risen 65 bps. Lenders have narrowed profit margins as capacity constraints have waned.
Mortgage applications for the week ending April 30 fell 0.9%. Refi apps managed to gain 0.1% after having declined in 12 of the last 15 reports. Over that period, refis are down 32%. Purchase apps fell 2.5% during the reference week and are now down 21% since mid-January.
The April MBS prepayment report showed the pace of refinancing declined slightly more than anticipated. FNMA aggregate speeds declined 21% to a still elevated 28CPR. UMBS 30-year 2.5s experienced the largest change compared to the previous month, declining 38% to 19.3CPR. A portion of the decline in speeds was a function of having two fewer business days in April compared to March. Our complete prepayment commentary can be found here.
The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) decreased 2 bp to 1.28%. The spread has remained relatively stable over the past month but has narrowed 22 bps this year.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP