FRM Update

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.

Trading Activity

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.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

U.S. mortgage rates ticked downward last week according to  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

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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