September 18, 2017
Mortgage rates and Treasury yields rose last week; however, MBS did not sell off nearly as much as the Treasury market, resulting in a tightening of mortgage yield spreads. Mortgage applications rose to the highest level since the election increasing 9.9%. No housing reports were released last week. The report to watch this week will be existing home sales on Wednesday given the recent weakness in both new and existing sales data, and further details on the unwind of QE from the FOMC meeting Wednesday. As to the balance sheet plans, there appears to be unanimity on the committee to begin now.
- Mortgage yield spreads tightened last week:
- 15-year and 30-year MBS yield spreads ended the week 6 to 9bps tighter to Treasuries and swaps
- 30-year MBS yield spreads ended the week 4 to 7bps tighter to Treasuries and swaps
- Curve slope measured by 2- and 10-year Treasuries steepened 4bps last week from 78 to 82bps.
- Investors were active last week in new 15yr MBS, primarily in 3.5% coupons.
- Investors were also active in seasoned 30yr MBS, primarily in 3.5% to 4% coupons.
Trading in CMOs was steady last week with generally unchanged to slightly tighter yield spreads in certain CMO structures. Depositories continue to focus on stable structures with 4- to 6-year average lives. CMO issuance totaled approximately $14B in August, consistent with prior month levels. Investors were active in CMOs backed by Relo collateral with 3% coupons and in 3.5% squared sequential structures.
Mortgage Rates and Refinance Activity
- Mortgage rates rose last week reversing the 10bp decline from the previous week in 30-year mortgage rates.
- 15-year mortgage rates rose 2bps to 2.96%
- 30-year mortgage rates rose 9bps to 3.76%
- 15- and 30-year fixed mortgage rates have now fallen 28 and 30bps year-to-date; however; mortgage rates are 29 and 27bps higher than this time last year.
- Mortgage applications for the week ended September 8 jumped 9.9% on healthy gains in both purchase and refinance activity. The 9.9% increase was the biggest since a 14.2% gain in early July 2016 when the 10-year yield fell to an all-time low of 1.36% in response to the initial Brexit vote. Purchase applications jumped 10.9%, the biggest weekly bounce since November 18, and pushed the index to its highest level since the middle of June. Refinance application activity increased 8.9%, the largest increase since the middle of July, and lifted the index to its strongest level since last November.
- The weekly results obviously had a positive impact on the four-week averages for both indices; the refinance average has now improved in six consecutive weeks as mortgage rates have continued to slide.
- Refinance activity remains at historically low levels and the Refi Index reveals that burnout dominates an unincentivized population of mortgage holders this year; although a slight increase in refinance activity appears to be in place due primarily to a trend of lower mortgage rates during 2017.
No housing reports were released last week; however, this week’s calendar is a housing-heavy week with reports on homebuilder confidence (Mon), new starts and permits (Tue), existing home sales (Wed), and FHFA home prices (Thu). The report to watch will be Wednesday’s existing home sales given the recent weakness in both new and existing sales data.
Dan Stimpson, CPA
Senior Vice President