November 29, 2021
Current Yield Spreads
Mortgages were unable to keep pace with the Treasury market last week, especially on Friday as the 10-year Treasury declined 16 bps to 1.48%, in reaction to news of the new coronavirus variant identified in South Africa. Nominal yield spreads on both 15- and 30-year MBS to Treasurys with similar duration widened 2 bps to 20 bps and 54 bps, respectively.
The summary below reflects customer purchase activity from the previous week. UMBS 20-year 2.0s and UMBS 10-year 1.5s led activity for the second consecutive week. The tightening of yield spread available on 15-year passthroughs has seemingly led many investors to shift buying activity to more defensive positions (10-year passthroughs) or to move further out on the curve where more spread can be found in 20- and 30-year passthroughs. There’s also been decent two-way flow as depositories have begun year-end repositioning (selling underperforming positions) to improve earnings in future periods.
- UMBS 10-year 1.5s & 2.0s
- UMBS 15-year 1.0s to 2.5s (1.5s the most traded)
- UMBS 20-year 1.5s to 2.5s (2.0s the most traded)
- UMBS 30-year 2.0s & 2.5s (2.0s the most traded)
- FNMA 30-year Jumbo 2.0s & 3.5s
- GNMA 15-year Jumbo 2.5s
- Low loan balance pools with a maximum loan amount ranging from $85k to $200k and pools collateralized with loans sourced from NY, FL, and TX.
- Custom CRA Pools
Mortgage Rates and Applications
Bankrate’s most recent survey shows mortgage rates were relatively stable last week. 15-year rates increased by 1 bp to 2.50%, while 30-year rates declined 2 bps to 3.18%. Weekly mortgage applications rebounded 1.8% following a 2.8% decline. Purchase applications jumped 4.7%, a third consecutive gain and the largest since early September, while refinancing activity edged 0.4% higher after slumping 5.1%. Purchase applications are 15.1% below January’s peak but 19.5% higher than the 2021 low in July.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies