FRM Update

May 22, 2017

Activity faded in the MBS and CMO sectors as the week progressed and Treasuries rallied. Higher prices, curve flattening and slightly tighter spreads between MBS and their Treasury benchmarks seemed to create just enough uncertainty to keep many portfolio managers on the sidelines last week. Mortgage application activity and mortgage rates declined last week. Housing data has shown results that mirror the larger economic trend – improving confidence, but weaker activity.




Trading activity in CMOs was also light last week as the availability of specific structures continues to limit activity with issuance remaining quite weak and finding specific structures to match inquiries remains a challenge. Depositories were focused on stable structures with 4- to 6-year average lives, especially sequential structures. Full coupon front sequential structures off of 30yr 3.5% collateral (“3.5 squared”) remained popular with financial institutions as these types of structure have wider spreads and are in better supply than many shorter structures

Rates and Refis



Housing:  The housing data has shown results that mirror the larger economic trend – improving confidence, but weaker activity.

Homebuilder Confidence Remains High:  Prospective buyer traffic eased in the May NAHB Housing Market Index, but a 12-year high for future sales expectations helped push the headline index to the second-best level since June 2005.

New Housing Data Weighed Down by Weak Multi-Family Activity:  Housing starts and building permits unexpectedly declined in April and showed big misses relative to estimates; single-family starts were steady up 0.4% in April and increased 8.9% YOY, but single-family permits dropped 4.5%, the biggest monthly decline since February 2015.

Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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