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.
The summary below reflects purchase activity from the previous week. Investors focused on the 15- and 20-year sectors with relatively low coupons.
- UMBS 10-year 1.5s and 2.0s
- UMBS 15-year 1.0s to 3.5s (1.5s the most traded)
- UMBS 20-year 1.5s to 3.0s (2.0s 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 & 2.0s
- 15-year 1.5s and 2.0s and 20-Year 2.0s LLB Pools ($85k -$150k max loan size) and NY/FL collateral
- Custom CRA 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