MBS Weekly Market Commentary Week Ending 06/12/2020

Severe gyrations in the stock markets left intermediate and long Treasury yields sharply lower on the week.  The yield of the 10-year note declined by 19 basis points to 0.705%, leaving the yield curve noticeably flatter; short-maturity yields remained pinned in place, reflecting continued accommodative monetary policy.  The Fed was, in fact, a major driver of the markets last week, as Thursday’s sharp equity selloff was precipitated by Fed Chairman Powell’s downbeat statement on the short-term economic outlook, as well as concerns that new waves of Covid-19 infections are brewing.


*The MBS Weekly Market Profile Report corresponds to the commentary below.*

MBS performance was mixed last week.  Over the past five sessions, Fannie 2s cumulatively matched their 10-year duration-adjusted performance, while fuller coupons lagged the Treasury by 1-4 ticks.  Ginnies were mixed on the week, with GNII 2.5s tracking the 10-year while GNII 3s managed to outperform 10s by 5/32s.  Coupon swaps compressed as rates dropped; the Fannie 2.5/2 swap narrowed by almost a half point, while the 3/2.5 and 3.5/3 swaps contracted by 7-8 ticks.  Rolls remain special; even with June Class A settlement out of the way the Fannie 2 roll (July/August) is offered 4/32s special, while Ginnie II 2.5s and higher are rolling as much as 5+ special.

Application activity has continued to rebound, even as some parts of the country struggle to contain new outbreaks of the novel coronavirus.  For the week ending 6/5, the MBA’s refi index rose for the first time since early April, while the purchase index rose for the eighth straight week.  The accompanying chart shows that purchase activity has rebounded strongly from its nadir in early April. Click to enlarge While the current level may be inflated due to pent-up demand, it suggests that the real estate industry has either adapted to the new health restrictions or is ignoring them.  (Hopefully not the latter.)

Demand for houses appears strong, however, highlighted by a report from Redfin indicating that demand for home continues to strengthen while inventory levels remain low.  (Thanks to Brent Nyitray for the post.)  While the report also suggests that “credit has pretty much loosened up except for self-employed borrowers,” easier credit is not yet reflected in the MBA’s indices of credit availability, which have stabilized but still reported lower for May, as shown in the chart below.  Click to enlarge However, the indices are consistent with reports that the housing market is much healthier for moderately-priced homes than for properties at higher price points where a jumbo loan may be necessary; the May jumbo index reported roughly 53% lower than its February level.

The FHFA issues a press release which indicated that they will not be proceeding with the changes to pooling and trading practices that they proposed late last year.  The proposed changes, issued in the form of a Request for Input (RFI), included:

  • Mandating and/or incentivizing issuers to issue almost all MBS as multi-issuer pools;
  • Allowing specified pool trading only for “prescribed categories;”
  • Forcing issuers whose prepayment speeds were “anomalous” to pool some or all of their production into a separate category of pools that would not be deliverable into TBAs.

The announcement was rather oblique; the press release merely stated that “[A]fter careful review of the comments received in response to the RFI, FHFA has directed the Enterprises to further align their practices for evaluating seller and servicer prepayment related activities.”  It was followed by a list of fairly innocuous activities and enhancements to prepayment measurement and reporting, some of which are already being performed under the Final Rule issued in 2019.

As we discussed in our 12/20/19 Commentary, the proposed changes were unnecessary and disruptive, and would not have served to further align the prepayment performance of pools issued by Fannie Mae and Freddie Mac.  One interesting development is that the specified pool market has already evolved organically to include categories for maximum $200K and $225K loan balances, categories that probably would not currently be traded if new specified pool categories required regulatory approval. 



About the Author: Bill Berliner

As Director of Analytics, Bill Berliner is tasked with developing new products and services, enhancing existing solutions, and helping to expand MCT’s footprint as the preeminent industry-leader in secondary marketing capabilities for lenders.

Mr. Berliner boasts more than 30 years of experience in a variety of areas within secondary marketing. He is a seasoned financial professional with extensive knowledge working with fixed income trading and structuring, research and analysis, risk management, and esoteric asset valuation.

Mr. Berliner has also written extensively on mortgages, MBS, and the capital markets. He is the co-author, with Frank Fabozzi and Anand Bhattacharya, of Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques, which was named one of the top ten finance texts in 2007 by RiskBooks. He wrote and edited chapters for The Handbook of Mortgage-Backed Securities, The Handbook of Fixed-Income Securities, Securities Finance, and The Encyclopedia of Financial Models. In addition, Mr. Berliner co-authored papers published in The Journal of Structured Finance and American Securitization. He also wrote the monthly “In My View” column for Asset Securitization Report from 2008-2012.

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.


Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

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Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

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MBS Weekly Market Commentary Week Ending 3/31/23

The market reaction went a little “too far, too fast” in regard to the Fed policy pivot. We witnessed the coupon stack (i.e., the price spread between TBA coupons) decompress in more than a trivial manner in a short period. However, the primary mortgage market has been largely reluctant to follow the Treasury rally, and mortgage rates have ultimately not dropped by the same amount as Treasury yields.

MBS Weekly Market Commentary Week Ending 3/24/23

The FOMC raised its benchmark rate by 25 basis points to a new range of 4.75%-5.00% on Wednesday, a middle ground policy move made in the hope of tampering inflation without further harming the banking system. The raise marks the 9th consecutive rate hike since the Fed began hiking in May of last year and brings the target fed funds rate range to the highest level since September 2007. While the central bank’s monetary policy has been aimed at correcting inflation, it has also revealed hidden weaknesses (e.g., entities whose balance sheets relied on low interest rates).

MBS Weekly Market Commentary Week Ending 3/17/23

Next week will reveal the Fed’s resolve on continuing to beat the drum on their aggressive inflation fight. The word until now has been that the central bank will keep hiking interest rates until inflation is under control.

MBS Weekly Market Commentary Week Ending 3/10/23

Events this week likely will lead to a higher peak interest rate than investors had been expecting just weeks ago. Central bankers appear worried about a cycle in which workers seek higher pay to offset inflation’s bite, and in turn trigger more price increases. In fact, inflation remains high because people have jobs and earn enough income to cover stubbornly expensive housing costs. Robust hiring is good for the economy and workers, but elevated pay growth puts added pressure on the Fed to bring down earnings. 

MBS Weekly Market Commentary Week Ending 2/10/23

The week after the jobs report is generally pretty data-light, and this week was no exception. With a dearth of data, market movement hinged on “Fed speak” and consumer sentiment. We saw some volatility return to bond markets as investors built in expectations for a more hawkish Fed. As a reminder, the Fed raised its benchmark rate last week to a range of 4.5% to 4.75%. Let’s run through what we’ve learned in the wake of that decision and a robust U.S. payrolls report that took some wind out of investors’ sails that had hopes for rate cuts by summer.

MBS Weekly Market Commentary Week Ending 2/3/23

As strong as economists may have thought the job market was, it’s even stronger. In addition to headline non-farm payrolls in January (517,000) beating estimates by around 300,000, employment numbers were revised higher for the past two months. Yes, a tight labor market is anathema to any sort of quick stop to the Federal Reserve’s rate hiking cycle, but the growth rate in average hourly earnings is declining, which will be welcome news to Fed Chair Powell and his colleagues. There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.