FRM Update

May 3, 2021



Fed Support   

The Federal Reserve’s agency mortgage purchases totaled $29.6bn last week.  The Fed continues to focus on current production coupons as the most heavily purchased securities were UMBS 30-year 2.0s and 2.5s with total volumes of $11.8bn and $8.6bn, respectively.

Last week Fed Chair Powell reiterated the Fed’s commitment to continue to add $40bn of MBS to its balance sheet each month for the foreseeable future.  The Fed now holds approximately $2.25tn in agency mortgage bonds, which has helped push valuations much higher.

The New York Fed released its next MBS purchase schedule. The bank will target $71.7bn of agency MBS through May 13, compared to the recently completed cycle of $59.8bn. There was no change to the type of coupons its planning to purchase.


Current Yield Spreads

MBS outperformed Treasurys with similar duration last week, sending nominal spreads to historically tight levels.  Spreads on 15-year MBS tightened 2 bps to 40 bps, while spreads for 30-year MBS tightened 5 bps to 47 bps.  Spreads narrowed approximately 15 bps during April because of strong Fed and bank demand.  Banks have purchased $183bn in agency MBS so far this year despite rich valuations because of an influx of deposits and few investment alternatives.


Trading Activity

The summary below reflects purchase activity from the previous week. Activity was heavily focused on 15-and 20-year 1.5s and 2.0s.  We’ve also seen a pick-up in demand for pools with prepayment friction as payups on this collateral have declined in recent weeks.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:


Mortgage Rates and Applications

U.S. mortgage rates trended slightly higher last week according to Bankrate.com.  Both the 15-and 30-year mortgage rates increased by 4 bps to 2.39% and 3.11%, respectively.  The 30-year mortgage rate has increased 24 bps since year-end but is still relatively low.

For the week ending April 23, the Mortgage Bankers Association reports that applications declined 2.5% compared to the previous week.  The decrease could signal a pullback resulting from higher mortgage rates, but it’s likely a reflection of the record low inventory of homes available for purchase. Refinance applications showed a drop of 1.1% for the week, the seventh decline in the past eight weeks.



The primary/secondary mortgage spread (average 30-year mortgage rate minus 30-year MBS current coupon) increased 1 bp to 1.30%. The spread has remained relatively stable over the past month but has narrowed 20 bps this year and 37 bps from one year ago.  After bulking up on staff during 2020, lenders have excess capacity, which could further pressure the spread.




Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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