May 24, 2021
Current Yield Spreads
Despite some intra-week volatility, nominal MBS yield spreads to comparable Treasurys ended the week unchanged. Spreads on 15-year MBS held firm at 46 bps, while spreads for 30-year MBS remained at 49 bps. Spreads remain tight on a historical basis due to the strong support by the Fed and demand from financial institutions with excess liquidity. Support appears to be unwavering based on the latest Federal Reserve minutes from the April 28 meeting that reiterated the bank will continue to purchase “agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee’s maximum-employment and price-stability goals.”
The summary below reflects purchase activity from the previous week. Investors focused on the 15- and 20-year sectors with 2.0% coupons and prepayment friction stories (LLB and NY).
- UMBS 10-year 1.5s and 2.0s
- UMBS 15-year 1.0s to 3.5s (2.0s 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 15-year Jumbo 1.5s
- FNMA 30-year Jumbo 2.0s & 2.5s
- 15-year 1.5s and 2.0s and 20-year 2.0s LLB Pools ($85k -$175k max loan size) and NY 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 edged higher by 3 bps to 2.38% and the 30-year mortgage rate declined by 1 bp to 3.04%. The 30-year mortgage rate is 23 bps higher than it was at the beginning of the year, but still favorable for borrowers, as is evident by the continued strong pace of refi activity.
Mortgage applications increased 1.2% from the previous week, according to the latest report from the Mortgage Bankers Association for the week ending May 14. Purchase applications fell 4.1%, while the refinance index rose 4.0%, its second week in a row of increases and the fourth out of the last five weeks.
The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) remained at 1.30%. The spread has been stable over the past couple of months but has seen a drawdown of approximately 20 bps this year, with most of the move coming in February. Lenders continue to have room to narrow the spread further as the 5-year average is 1.20%.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP