November 27, 2017
Mortgage sector yields continued to trade in a tight range during the holiday-shortened week. Mortgage yield spreads were mixed versus Treasuries and remain historically tight. The MBA Refi Index fell 4.8% to 1306, falling nine of the last eleven weeks. Existing home sales were better than expected in October with the annualized 5.48MM unit pace the strongest level since June; however, YoY sales were down for a second consecutive month for the first time since 2014.
- Mortgage yield spreads were mixed last week:
- 15-year MBS yield spreads ended the week 1 to 2bps tighter to Treasuries and swaps.
- 30-year MBS yield spreads ended the week unchanged to 1bp wider to Treasuries and swaps.
- Curve slope measured by 2- and 10-year Treasuries flattened another 3bps last week from 62bps to 59bps.
- Investors were active last week in 15yr MBS, primarily in seasoned 3.0% and newer 3.5% coupons, which offer attractive yields and spreads in the sector.
- Investors were also active in seasoned 30yr MBS with 3% to 4% coupons.
- A combination of higher yield versus agency bullets and deference to convexity inspired activity in seasoned 5yr and new 7yr multi-family FNMA DUS yielding approximately 2.4%.
CMO spreads were unchanged last week, while activity in CMOs slowed compared to recent levels. Investor focus was primarily in short GNMA PAC structures offering extension protection and approximately 2.5% yield and 2.5-year average lives. Full coupon front sequential structures off of 30yr 3.5% collateral (“3.5 squared”) remained popular with financial institutions with wider spreads and better supply than many shorter structures. Depositories continue to focus on stable structures with 4- to 6-year average lives.
Mortgage Rates and Refinance Activity
- Mortgage rates were mixed last week and remain in a tight range.
- 15-year mortgage rates fell 2bps to 3.13%, 4bps above the YTD average 3.09%.
- 30-year mortgage rates rose 1bp to 3.80%, 9bps below the YTD average 3.89%.
- 15- and 30-year fixed mortgage rates have fallen 11 and 26bps, respectively, year-to-date.
- Mortgage applications increased for a second consecutive week. Applications for the week ended November 17 rose 0.1%, driven higher by a 5.3% increase in purchase activity offset by a decline in refinancing activity of 4.8%.
- The MBA Refi Index fell 4.8% to 1306 and continues to be historically low and range-bound, holding far below levels of 2016. The Index reached a year-to-date high the week ending September 8th at 1637; however, the Refi Index has fallen nine of the last eleven weeks to slightly below the YTD average of 1353.
Existing Home Sales Top Estimates: Existing home sales were better than expected in October, with the annualized 5.48MM unit pace the strongest level since June. A portion of the gains were driven by a recovery of sales in the South that slowed after the hurricanes. Sales in the South improved 1.9% in October after falling more than 7% combined in the two months prior, but still registered their third weakest pace in more than a year. The improvements were geographically diverse with sales in the Northeast up 4.2%, sales in the West 2.4% higher, and activity in the Midwest improving by 0.8%. While this report in isolation provides a solid data point for home sales, a broader view shows continued headwinds. On a YoY basis, sales were down for a second consecutive month for the first time since 2014.
Dan Stimpson, CPA
Senior Vice President