September 23, 2019
Yield spreads for current coupon MBS to Treasuries were mixed last week as the overall Treasury market increased in price. 30-year MBS tightened by 3 bps to 98 bps, while 15-year widened 4 bps to 69 bps. Yield spreads on mortgage product remain at multi-year highs, as shown on the graph below. Over the past year, yield spreads on 15-year MBS have increased over 80%, from 38 bps to 69 bps, which has helped mitigate a portion of the reduction in Treasury yields.
Activity was steady last week as investors continued to focus on adding 15- and 20-year MBS. The following is a list of actively traded sectors and coupons:
- 15-Year 2.0s to 3.5s – Trades reflected a mix of new production and seasoned pools. 0s were the most actively traded coupon.
- 20-Year 3.0s & 3.5s – Newer production 3.0s & 3.5s were in high demand due to their higher projected yield and duration profiles compared to 15-year MBS.
- CMBS – The focus for CMBS (Fannie DUS & Freddie Ks) was on finals in the 5- to 10-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.
Mortgage Rates and Refinance Activity
Benchmark mortgage rates decreased last week. 15-year mortgage rates fell 4 bps to 3.21%, while 30-year mortgage rates decreased 4 bps to 3.75%.
Total mortgage application volume was flat for the week, down a slight 0.1%, according to the Mortgage Bankers Association’s seasonally-adjusted index. Volume was still 67% higher than the same week one year ago, when rates were much higher. Applications to refinance a home loan fell 4% for the week but were 148% higher annually. Overall volume has been strong since July, when rates began falling sharply.
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP