FRM Update

September 27, 2021

Current Yield Spreads

Fed Chair Powell said if the economic recovery continues as expected the central bank could begin scaling back its asset purchases as soon as November and complete the process by mid-2022. The number of FOMC officials projecting liftoff to occur in 2022 grew from 7 to 9 (of 18 participants), implying a 50/50 chance for the first interest rate hike.  The Treasury market sold off in response to the decision with the 10-year closing at 1.45%, the highest weekly close since June.

Yield spreads were under pressure all week until Friday when buyers came into the market to take advantage of the higher projected yields and spreads recovered most of the widening that had occurred earlier in the week. Nominal yield spreads on 15-year MBS (1.5s) to Treasurys with similar duration widened by 1 bp to 38 bps, while yield spreads on 30-year MBS (2.0s) widened 3 bps to 74 bps.

Trading Activity

The summary below reflects customer purchase activity from the previous week. Activity was strong and led UMBS 20-year 2.0s followed by UMBS 15-year 1.5s.  There was also strong demand for pools collateralized by jumbo loans.

TBA-Eligible Securities:

Non-Deliverable Securities:

Specified Pools:

Mortgage Rates and Applications

Mortgage rates rose slightly last week according to Bankrate’s most recent survey. The 15-year rate increased 2 bps to 2.30% while the 30-year rate was higher by 4 bps to 3.04%. The 30-year rate is 28 bps below the 52-week high of 3.32%, and 19 bps higher than the 52-week low of 2.85%.

Mortgage applications for the week ending September 17 rose 4.9% on a 2.2% increase in purchase applications and a 6.5% gain in refi applications.  While both categories of applications remain depressed versus their January-2021 levels, purchase applications have now risen 15% over the past seven weeks.

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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