November 8, 2021
Current Yield Spreads
As was widely expected, the Fed announced last week that it will begin slowing its $120bn in monthly purchases by $15bn per month beginning this month. Treasury purchases will initially be slowed from $80bn to $70bn per month and MBS purchases from $40bn to $35bn. In December, purchases will be reduced by the same amount. If conditions permit the Fed to continue tapering at a $15bn-per-month pace, purchases will conclude in June 2022 with the balance sheet at $8.8tn.
The monthly MBS prepayment data were released late last week and showed that October prepayment speeds declined 8% for 30-year UMBS and 9% for 15-year UMBS. The declines were likely due to slightly higher mortgage rates month over month and there was one less business day in October compared to the previous month.
The relentless spread tightening trend reversed course last week as MBS underperformed Treasurys. Nominal yield spreads on current coupon 15-year MBS to Treasurys widened 2 bps to 19 bps, while 30-year MBS spreads widened by 1 bp to 51 bps.
The summary below reflects customer purchase activity from the previous week. UMBS 15-year 1.5s led activity followed closely by UMBS 20-year 1.5s.
- UMBS 15-year 1.0s to 3.0s (1.5s the most traded)
- UMBS 20-year 1.5s & 2.0s (1.5s the most traded)
- UMBS 30-year 2.0s & 2.5s
- FNMA 30-year Jumbo 1.5s & 2.0s
- GNMA 15-year Jumbo 2.0s
- Low loan balance pools with a maximum loan amount ranging from $85k to $150k and pools collateralized with loans sourced from NY.
- Custom CRA Pools
Mortgage Rates and Applications
Bankrate’s most recent survey indicates mortgage rates ticked up last week. 15-year rates increased 4 bps to 2.48%, while 30-year rates climbed 2 bps to 3.16%. Mortgage applications for the week ending October 29 fell 3.3% as purchase applications dropped 1.6% and refi applications fell 4.3%.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies