FRM Update

November 13, 2018

Yield spreads on current production coupons to Treasuries were mixed for the week.  Spreads widened slightly for 30-year MBS and tightened on 15-year MBS. The theme in the MBS market continues to be lower dollar prices and wider spreads relative to the last several years.  For example, Freddie 15-year 3.5’s are currently trading at a slight discount, a level unseen since the second quarter of 2011.

October prepayments speeds were announced last week. Prepayments increased for all three agencies, but the increases were only ~20% of the decreases seen in September.  There were three extra days in October that likely accounted for the increases.  The complete commentary on prepayment speeds can be found here.

Demand continues to focus on seasoned 15- and 20-year passthroughs trading at a discount.  The lower coupons generally have better convexity relative to higher coupons and longer WAMs.

The following represents a summary of the activity last week and themes in the overall sector:

MBS pools – The MBS desk routinely creates custom MBS pools to assist financial institutions with the Community Reinvestment Act requirements.

Mortgage Rates and Refinance Activity


Mortgage Apps Continue to Decline: Mortgage applications for the week ending November 2 fell 4% from a week earlier and dropped 16% from one year ago.  Applications to purchase a home led the volumes lower, declining 5% for the week to the lowest level in two years.  Mortgage applications to refinance a home loan have generally been declining for more than a year and fell an additional 3% last week.  The refinance share of mortgage activity decreased to 39.1% of total applications, from 39.4% the previous week.

Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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