FRM Update

September 9, 2019



MBS

Yield spreads for current coupon MBS to Treasurys tightened during last week’s bond market sell-off, with 15-year tightening by 2 bps to 62 bps, while 30-year contracted 6 bps to 89 bps. However, higher coupons were largely unchanged on the week.

Yield spreads remain near their multi-year highs, as investors have approached premiums with an extra dose of caution. The decline in duration due to accelerating prepayments, lower Treasury yields, and increased agency issuance have also contributed to spreads widening this year.




Activity last week was strong with a healthy degree of buying and selling.  We continue to see investors selling seasoned TBA deliverable FNMA/FHLMC 10- and 15-year into the TBA bid.  The TBA bid for seasoned pools can result in a negative take-out yield (projected yield to the buyer) to the Treasury curve.  The trade works best for coupons ranging from 2.50% to 4.00% with a current weighted-average maturity of 80 months or less. Reinvestment has generally been focused on specified pools with call protection stories (smaller loan balances, seasoned pools) and/or higher-duration product with locked-out cash flow.


The following is a list of actively traded sectors and coupons:


Mortgage Rates and Refinance Activity

Mortgage applications for the week ending August 30 fell 3.1% despite another decline in mortgage rates during the reference week.  According to the MBA report, the average 30-year mortgage rate dropped from 3.94% to 3.87%, the lowest since before the Fed began raising rates and down 1.30% from November’s peak. The cycle-low for 30-year mortgage rates, according to the MBA data, was just below 3.50% back in late-2012.  On a positive note, purchase apps in the current report rose 3.6% and are now approaching their highest levels since 2013.  Refi apps fell 7.0%.





Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120