FRM Update

September 24, 2018

Yields spreads for current production coupon MBS to Treasuries continued the trend and tightened a couple of basis points this past week, as the overall bond market trended higher in yield for the third consecutive week, while mortgage rates have increased for the last four weeks.  Valuations continue to remain near their highs for the year despite the modest tightening the last several weeks.

Activity last week started out slow, but participation improved as the week progressed.  The underlying theme continues to be driven by investors seeking current cash flow and protection from rising market rates.  With the Fed now expected to increase rates mid-week this week and once more later this year, investors have focused primarily on defensive structures such as new issue or seasoned 15-year and seasoned 20-year MBS.  The following represents a summary of the activity last week and themes in the overall sector:

Mortgage Rates and Refinance Activity

Mortgage applications increased 1.6% from one week earlier, rising for the first time in over a month and just the second time in the last 10 weeks.  Refinance activity increased 3.7% for the week ending September 14th, after falling 5.9% from the previous week to the lowest level since December 2000.  The gain for the refinance index occurred even as the MBA reported its average 30-year mortgage rate ticked up from 4.84% to 4.88%, its highest level since 2011. On a four-week average basis, refinance activity is at the lowest level of the cycle.  The refinance share of application activity increased to 39.0% from 37.8% the previous week.



Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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