FRM Update

October 7, 2019



MBS

Yield spreads for current coupon MBS to Treasuries were mixed last week as the overall Treasury market continued its run higher in price. 30-year MBS widened by 3 bps to 103 bps, while 15-year held firm at 68 bps.

Yield spreads on mortgage product remain at multi-year highs, making for attractive valuations, especially in 15-year. 15-year have reached some of the cheapest levels versus 30-year in some time (see graph below).

October-released factors indicated that September fixed-rate prepayments increased for 30-year pools for all three agencies but decreased for 15-year pools.  This is the seventh increase for 30-years in the past 8 months.

Considering the bond market rally and prepayment report, this may be a good time to clean-up odd lots and underperforming positions.  A consistent trade has been to sell seasoned TBA deliverable FNMA/FHLMC 10- and 15-year into the TBA bid.  The TBA bid for seasoned pools can result in a negative take-out yield (projected yield to the buyer) to the Treasury curve.  The trade works best for coupons ranging from 2.50% to 4.00% with a current weighted-average maturity of 80 months or less.




Activity was strong last week. Investors focused on 15-and 20-year TBA-eligible pools, as well as 30-year pools secured by jumbo loans. The following is a list of actively traded sectors and coupons:

 

Mortgage Rates and Refinance Activity

Benchmark mortgage rates declined last week. 15-year mortgage fell 9 bps to 3.12%, while 30-year mortgage rates decreased 3 bps to 3.71%.  Mortgage applications for the week ending September 27 on a 0.9% increase in purchase apps and a 14.2% jump in refi apps. Purchase applications continue to point to a positive trend for home sales.




Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120