MBS Weekly Market Commentary Week Ending 4/15/22

MBS spreads, basically the yield on a mortgage backed security minus the yield on the corresponding treasury, continue to widen, along with bid-ask spreads in the TBA market. This has made the TBA market more illiquid than usual, which is having an impact on front-end rate sheets. Bid-ask spreads have increased from about one tick to 10 ticks, an increase of nearly 30 basis points. 

 

Like TBA spreads, MBS spreads are wider than historical averages, though not quite at the wide levels of early 2020. The last check showed spreads around 1.15% versus historical averages around 0.9%. Price differences between the months are increasing as rates rise, which will translate into higher lock costs. The Federal Reserve is all but certain to hike the Fed funds rate 50 basis points at its May meeting, and even though it has been clearly telegraphed, we have seen a sell-off regardless.

 

Though all the above factors have led to mortgage rates being less sensitive to the movements of the 10-year U.S. Treasury, 30-year fixed-rate mortgage rates have not been this high since February 2011. There are some indications that mortgage rates would move lower if the 10-year U.S. Treasury stabilizes. 

 

Much of this is being driven by fears of the Federal Reserve’s imminent tightening of monetary policy, which includes an exit from the MBS market. After helping manage currency and acting as the lender of last resort for most of the Federal Reserve’s existence (since being established in 1913), it has now been tasked with buying up assets to support the economy. The Federal Reserve’s balance sheet has $8.9 trillion of assets, which should be a high-water mark since the Fed is expected to start reducing its balance sheet soon

 

While yield-curve inversion, like we saw last week, adds to the narrative around growth risks, a recession is not necessarily imminent, at least this year. Markets currently fear that the Fed is going to cause a recession in 2023 as increasing interest rates stifle economic growth. There are several reasons that may not be the case as we have strong buffers against a slowdown. The employment market is still red-hot, corporate bond yields have not risen, and economic indices are still well above any level from the decade before March 2021. 

 

With a lot of sharp moves in the market this week, it helps to have actionable recommendations to protect your business and pipeline. Join MCT for an Industry Webinar on April 19th at 11AM PT titled Taper Tantrum Two? Comparing 2013 to 2022 & What Lenders Can Do. In this webinar, MCT’s Phil Rasori, Justin Grant, and Andrew Rhodes will compare 2013 to 2022 in terms of the deteriorating market, market liquidity in specific coupons, loan sale execution liquidity, and investor pricing performance.

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 1/27/23

Even with the most aggressive pace of rate hikes in over a generation during the past year, recent data suggests that there’s still a path to a “soft landing” for the Federal Reserve. The U.S. economy posted the kind of mild slowdown in the last quarter of 2022 that the Fed wants to see as it attempts to tame inflation without choking off growth. Gross domestic product beat expectations to rise at a 2.9% annualized pace, down from 3.2% in the third quarter and a long way from a recession.

MBS Weekly Market Commentary Week Ending 1/20/23

Have you heard? Inflation was so 2022. All jokes aside, after we learned last week that U.S. inflation cooled for the sixth consecutive month (the consumer price index dropped 0.1% in December compared to the month prior), expectations are now that the Federal Reserve is likely to downshift rate hikes to 25 BPS going forward, beginning at next month’s FOMC meeting.

MBS Weekly Market Commentary Week Ending 1/13/23

Pay attention to the bond market rather than the Fed. That’s what I’m hearing as we learned this week that inflation continued to ease in December, though much focus was also on Wells’ exit from the correspondent space and its ramifications. The headline CPI (-0.1% month-over-month, +6.5% year-over-year) posted the slowest inflation rate in more than a year and core inflation (+5.7% year-over-year), which excludes food and energy, also posted the smallest advance in a year.

MBS Weekly Market Commentary Week Ending 1/6/23

While it’s back to business as usual, it was a fairly quiet week as we settled into the new year. Fast inflation and high interest rates dominated the narrative and upended markets across the world last year. When the dust settled, 10-year Treasuries were 200+ BPS higher than the start of the year, the curve inverted in a bearish fashion faster and farther than ever, implied volume spiked, and mortgage spreads were pushed from stubbornly rich to suddenly cheap. The result was an entire trade-able universe moving out of the money, originations grinding to a halt, and duration becoming a function of illiquid trade flows.

MBS Weekly Market Commentary Week Ending 12/23/22

MCT would like to wish everyone a Merry Christmas and Happy Holidays. Talk to close the year has been dominated by the Federal Reserve’s most aggressive policy tightening in four decades and its impact on the economy, and for us the residential housing market.