MBS Weekly Market Commentary Week Ending 09/11/2020

Treasury yields remain relatively unchanged despite minor fluctuations in both directions over the last two weeks. The Treasury yield curve steepened slightly with the 2-10 spread widening (by 4bps) to 0.54. The 10-year yield is currently 0.67%, and the 30-year is 1.42%. The 10-year TIPS yield is -0.98%, up 3bps due to CPI data showing an increase in consumer prices by 0.4%, versus the 0.3% forecasted.

Mortgage rates hit another all-time low in Freddie Mac’s Primary Mortgage Survey. Rates on 30-year fixed rate mortgages are down to 2.86%, 7bps down week over week, and 70bps lower than last year. New application activity continues to be driven by refinances, which jumped by 3%. A modest 0.2% increase was seen in purchases. Additionally, total applications are up 1.9% for the week ending 9/4, according to MBA’s Weekly Mortgage Applications Survey.

As interest rates continue to move toward record lows, the liquidity of low coupons in MBS trades remains a chief concern. On Friday, the Ginnie 2 coupon comprised a record 21% ($13 billion) of all Ginnie TBA trades. For reference, Fannie 2 coupon trades comprised 58% of all Fannie TBA trades, according to TRACE data provided by FINRA. The chart below, provided by Bloomberg, shows the Ginnie 2 coupon rally over the last few weeks.

By and large, 30-year UMBS moved in line with hedge ratios last week. The Fannie 3 and 3.5 coupon however, lagged the 10-year benchmark’s performance by 9 and 4 ticks, respectively. Lower Ginnie coupons outperformed the benchmark by 7- 8 ticks, while higher coupons Ginnies faired the same as Fannie 3 and 3.5 coupons. The 2 coupon had the strongest performance for Fannie 15-years, outperforming the 5-year benchmark by 2 ticks, while other 15-year coupons lagged the benchmark by 2-6 ticks. All in all, a better week for lower coupons, worse for higher.

In the week ahead, key reports will include July’s JOLT job openings, new inflation statistics, weekly jobless claim figures, and a highly anticipated Fed meeting on Wednesday. From the Fed meeting, investors will be looking to gain a more detailed commitment to keeping interest rates at the zero bound, as well as guidance on the stimulus policy going forward. The framework revisions provided by the Fed last month allow increased stimulus by allowing for periods of higher inflationary targets. However, if the Fed decides to use the increased capacity for stimulus to mitigate the risks of a slower recovery, the economic effects could be even less desirable in the long-term.

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.