September 16, 2019
Yield spreads for current-coupon MBS to Treasurys widened with the market sell-off, with 30-year widening by 12 bps to 101 bps, while 15-year increased 3 bps to 65 bps. Yield spreads on mortgage product remain at multi-year highs, despite the recent backup in rates.
Activity was strong last week as investors were anxious to take advantage of cheaper prices and higher projected yields. The following is a list of actively traded sectors and coupons:
- 15-Year 2.0s to 3.0s – Trades reflected a mix of new production and seasoned pools.
- 20-Year 2.5s to 3.0s – New production 2.5s traded at a slight discount and were a popular choice.
- Off-The-Run-Collateral – Buyers looking for higher yields continue to purchase non-TBA deliverable Jumbo, High LTV, and relocation collateral.
- CMBS – The focus for CMBS (Fannie DUS & Freddie Ks) was on finals in the 8- to 12-year range with lower premiums. This product along with lower coupon MBS has been a prevalent trade for investors seeking locked-out cash flow, positive convexity, and higher yields.
In case you missed it, September prepayment speeds were released last week. While speeds increased overall, they did not increase as much as last month. A complete recap of the commentary can be found here.
Mortgage Rates and Refinance Activity
Benchmark mortgage rates increased last week. 15-year mortgage rates increased 19 bp to 3.25%, while 30-year mortgage rates increased 4 bps to 3.79%.
Mortgage applications rose 2.0% in total last week as refinancing activity stabilized and purchase applications recovered for a second week, notching their strongest weekly increase since early June. Refinances were essentially unchanged, up just 0.4% compared with the previous week. They were still 169% higher than the same week one year ago.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP