October 25, 2021
Current Yield Spreads
Mortgages outperformed Treasurys for the third consecutive week but did come under some pressure during the latter part of the week on comments by the Fed. Fed Chair Powell said supply constraints have gotten worse and are likely to linger into next year, keeping inflation elevated for longer than expected; the Fed won’t hesitate to raise rates if longer-term inflation expectations become unanchored. For the week, nominal yield spreads on both current coupon 15- and 30-year MBS to Treasurys tightened 4 bps to 23 bps and 56 bps, respectively.
The summary below reflects customer purchase activity from the previous week. Activity was strong as depositories took advantage of lower dollar prices. UMBS 15-year 1.5s led trading activity followed closely by UMBS 20-year 2.0s. There was also good activity in UMBS 20-year 1.5s as prices slipped below par.
- UMBS 10-year 1.5s & 2.0s
- UMBS 15-year 1.0s & 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 (pick-up in activity in generic collateral vs jumbos due to minimal price differences and enhanced liquidity of TBA-eligible collateral)
- FNMA 30-year Jumbo 1.5s & 2.0s
- GNMA 15-year Jumbo 2.0s & 2.5s
- GNMA 30-year Jumbo 2.5s
- Low loan balance pools with a maximum loan amount ranging from $85k to $250k
Custom CRA Pools
Mortgage Rates and Applications
The sell-off in Treasurys last week pushed mortgage rates slightly higher according to Bankrate’s most recent survey. 15-year rates rose 6 bps to 2.46%, while 30-year mortgage rates increased 5 bps to 3.19%. Rates remain historically low but are currently at the highest levels seen since June.
Mortgage applications for the week ending October 15 were down 6.3% on a 4.9% decline in purchase applications and a 7.1% reduction in refinance activity. Going back to January, when mortgage rates hit their lows, purchase applications are now down 22% while refi applications have fallen 38%.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP