FRM Update

May 17, 2021



Federal Reserve Bank Support

The Fed’s current quantitative easing program (QE4) surpassed $2tn last week for total agency MBS purchased.  To put this figure into context, the Fed purchased $1.35tn and $1.40tn during the QE1 and QE3, respectively. The Fed will target $54.6bn agency MBS through May 27, compared to the previous cycle which totaled $71.7bn. This is the lowest planned purchase amount since the $52.9bn observed during the March 12 through March 25 cycle. The reduction is due to slower prepayments as fewer purchases are required to increase overall MBS holdings by the $40bn monthly target.


Current Yield Spreads

Nominal MBS yield spreads to comparable Treasurys were relatively stable last week. Spreads on 15-year MBS widened 2 bps to 46 bps, while spreads for 30-year MBS remained steady at 49 bps.



Trading Activity

The summary below reflects purchase activity from the previous week.  Investors focused on the 15- and 20-year sectors with relatively low coupons.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:


Mortgage Rates and Applications

U.S. mortgage rates were mixed last week according to Bankrate.com.  The 15-year mortgage rate increased 1 bp to 2.35% and the 30-year mortgage rate declined by 1 bp to 3.05%.  The 30-year mortgage rate is up 17 bps this year but 47 bps lower than one year ago.

Mortgage applications increased 2.1% from the previous week, according to the latest report from the Mortgage Bankers Association for the week ending May 7.  Refinance applications, which have been weak lately, increased 3.0% from the previous week, while purchase applications improved 1.0%.



The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) increased 2 bp to 1.30%. The spread has remained relatively stable over the past few weeks but has declined 20 bps this year, as lenders have narrowed their profit margins.




Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
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.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120