MBS Weekly Market Commentary Week Ending 10/30/2020

The 10-year Treasury yield rose to 0.85%, 5bps higher than start of last week. The 30-year Treasury is currently yielding 1.63%. The Fannie Mae 30-year current-coupon spread to the 5/10-year blend tightened 1bp to +80. Volatility has risen to its highest levels in about six months.

For the week ending on October 23rd, refinance activity increased 2.5%, according to the Mortgage Bankers Association, after the previous week’s 0.2% rise. The refi index stands 80% higher year-over-year. The purchase index decreased 0.3%. The conventional refinance sub-index rose 5.3% while the government sub-index was down 5.0%. VA and FHA refinancing applications fell 10.0% and rose 0.7%, respectively. The average size for a refinance loan increased to $298.1k from $294k. The Freddie Mac 30-year mortgage rate is at 2.80%, another record low. Lenders have the primary/secondary spread at 1.65%, up 50bps year-to-date. Home prices in 20 of the largest U.S. cities rose the most in two years in August as low mortgage rates spurred competition for an increasingly scarce supply of listings, according to Bloomberg.

Cumulative performance of MBS – relative to Treasuries – mostly improved last week. Fannie 30-years outperformed by 5 to 9 ticks on lower coupons, and higher coupons beat by 3 to 6 ticks. Ginnies were stronger as well. Lower coupons were 6 to 14 ticks better than hedges, and higher coupons (aside from the 3.5) were 4 to 5 ticks better. Fannie 15s were generally flat to the 5-year benchmark.

On Friday, the Fed’s aggregate mortgage buying was $4.2b compared to the previous session’s $5.3b, according to New York Fed data. The most heavily purchased today was the 30-year UMBS 2%, for December settle, with $2.7b. In an expected move and keep a lid on interest rates, the New York Fed announced Wednesday afternoon that it will now begin purchasing conventional 30-year 1.5%.

The Fed’s continued commitment to buying Mortgage-backed Securities and Treasuries aids in the stabilization of the MBS market, but Tuesday’s election brings uncertainty. Refinance volumes should remain high into the foreseeable future, given Fed buying and near-zero Fed funds rate remain constant. However, as the current refinance wave shores up the rest of refi-able volume, some analysts predict that the Primary/Secondary spreads narrow on the reduction of margins by additional origination capacity for lenders.

Recent polling has resulted in a blue-wave sentiment that cruxes on a democratic win in the general election, and a blue majority in the house. The yield-curve is currently bear-steepening with contingents on significant fiscal stimulus passing if the blue-wave theory holds true. This narrative poses significant down-side risk for mortgage lenders whose positions have (until recently) benefitted from overweighting long-positions on originations because interest rates could begin to drift upward while MBS prices decrease.

Fortunately, the Fed has maintained that they will continue their buying of MBS and Treasuries at the same pace to maintain the low yields we have been seeing (somewhat implicit yield-curve control). Be wary though, due to a phenomenon known as convexity hedging, MBS have a way exacerbating a sell-off in panicked times as investors look to shorten the duration of their portfolio. Suffice to say, adequately hedging a portfolio of originations is as important as ever right now.

Key events this week:

  • Tuesday: Presidential Election
  • Wednesday: MBA mortgage applications, Fed Meeting
  • Friday: Payrolls

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.