MBS Weekly Market Commentary Week Ending 4/26/19

Treasuries rallied nicely last week, pushing yields below key thresholds. The 10-year ended the week just below 2.50%, while the rally took the yield on the 2-year to 2.28%, leaving the 2-10 spread at +21.6, its widest level since late November of last year.

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

Also noteworthy was the steepening in the short end of the curve, leaving the 2-5 spread in positive territory (by half a basis point) for virtually the first time in 2019. The last month has also seen an uptick in realized Treasury volatility; the standard deviation of the 10-year yield has moved up about 0.8 basis points per day since mid-March. As the chart below suggests, realized Treasury vol has trended higher since it bottomed out last summer.

MBS performed reasonably well given the decline in rates, as the 30-year current coupon was unchanged in spread to 5-10 interpolated Treasuries. Coupon swaps compressed a bit, which is expected as yields decline, leaving the Fannie 3.5/3 swap narrower by about 5/32s on the week. Conventional and government 3.0s remain the only coupons with special rolls, with the Fannie 3 May/June roll trading more than 1+ special. That roll is also starting to perk up this week, and at this writing (10:00 PT) offered at 3+ ticks; traders short this TBA for May should be wary of the possibility that it might get quite expensive to roll as May notification approaches. (For example, the April/May roll go to almost 7 ticks on April 5th before selling off on 4/8, which was Class A notification for April.)

A few weeks ago we discussed application activity and whether the 1786 print on the MBA’s refi index (for the week ending 3/29) was an aberration or the sign of a sharp uptick in refi applications. The index has dropped steadily in recent weeks, reporting at 1293 for the week ending 4/19 (the last available report). While mortgage rates have ticked higher, the Freddie Mac survey rate is only 11 basis points off its lows. Moreover, the accompanying scatter chart and regression suggest that activity levels are very much in line with their trend vis-à-vis rates, with the 3/29 index representing a short-term blip in activity.

The late March spike in activity was interesting, however, as it was accompanied by a significant pickup in ARM applications. The chart below shows the MBA’s refi and ARM indices since the beginning of 2017. It’s noteworthy that the 3/29 refi spike was accompanied by a big pickup in the ARM index, which reported at its highest level since 2012; in addition, ARMs as a percentage of total apps reached their highest levels since early 2008. The coincidental timing of the spikes in the two indices is curious, and suggests that a short-term promotion was being run by one or more large lenders to market adjustable-rate loan products. Why lenders might undertake this type of initiative is a mystery; it may, for example, be related to a push in non-QM space which showed up in the MBA’s survey data. (The MBA’s methodologies have long been notoriously opaque; for example, we don’t even know what lenders participate in the survey at any point in time.)

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 1/27/23

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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.