MBS Weekly Market Commentary Week Ending 6/28/19

Intermediate and long-maturity Treasuries continued to rally last week, leaving the yield on the 10-year right at the 2% mark. The rally mainly benefitted maturities longer than seven years, as the 2-year yield only declined by a basis point (versus 5 bps on 10s) which left the 2-10 year spread at +25 bps. The rally incorporated both a lower TIPS break-even inflation rate (with the 10-year B/E ending the week at 1.7%, about 3.5 bps lower) while the TIPS yield itself (a proxy for a “real” 10-year rate) declined by about 2 bps to 0.30%.

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

Mortgage spreads and price performance lagged last week.  The 30-year Fannie Mae current coupon spread over Treasuries widened by about 4 bps, while lower Fannie coupons (i.e., 3s and 3.5s) lagged the 10-year on a duration-adjusted basis by about 4/32s.  30-year Ginnie IIs had a more varied performance; while 3s lagged the 10-year by 4/32s, 3.5s managed to track the 10-year.  Coupon and product swaps were little changed.  The Fannie (UM30) 3.5/3 swap narrowed by about 2/32s, while the 4/3.5 swap widened by a tick; the biggest mover in GNII/FN swaps was in 3.5s, which widened by 3/32s.

Dollar rolls ended the week mixed, with several notable developments.  Both UM30 and GNII 3% July/August rolls closed special, with the GNII 3% roll (at over 4/32s special) showing signs of blowing out prior to July notification on 7/18.  Fannie 3s and GNII 3.5s are both rolling about 1+ special, while a number of fuller coupon rolls (e.g., Fannie 4s and higher) closed the week in negative territory.  As discussed last week, negative rolls reflect their high dollar prices, fast expected prepayment speeds, and high money market rates, which remain well above short-term Treasury yields.

The MBA’s refi index rose by 3% for the week ending 6/21 to close at 1949, a solid number but still well below what is considered a “refi wave.”  (The index’s recent peak was at 2843 in July of 2016, during the post-Brexit rally.)  While the increase in refinancing applications reflected declining mortgage rates, it’s unclear where mortgage rates have actually been quoted through much of June.  For example, there has been a fairly noticeable discrepancy between the two major 30-year conventional indicators, the Bankrate.com national average conventional rate and the Freddie Mac survey rate.  As indicated by the accompanying chart, the weekly Freddie rate has been as much as 18 basis points lower than the Bankrate average since Memorial Day of this year.  (By contrast, the Bankrate average was significantly lower than the Freddie survey rate for much of 2018.)  Click to Enlarge The collective MCT pipelines offer some insights into the question of where 30-year conventional locks are actually being taken.  The weighted average note rate associated with locks taken over the last 15 days of June was 4.07% for 30-year conventionals (and 3.93% for 30-year government loans).  In addition, the chart below gives an interesting picture of recent lock activity for MCT’s clients.   A large portion of 30-year conventional locks added to the pipeline over the last 15 days have had 3.875% and 4% rates, with a smattering of loans at both lower and higher rate levels.  This suggests that the higher Bankrate indicators have probably been more representative of the market than the Freddie rate; this in turn may indicate that the recent decline in the Bankrate average may portend a broad uptick in refi activity and the MBA application indices.
Click to Enlarge Interestingly, the graph also indicates that the 30-year government locks in MCT’s client pipelines display a broader dispersion of rates; for example, less than half of the balances of loans in client pipelines have rates between 3.75% and 4.25%.  If this is representative of the overall government market, the large amount of recent locks with low note rates (e.g., between 3.5% and 3.75%) is being reflected in the specialness of the GNII 3 July/August roll, where hedging and selling activity is pushing down the back-month price and expanding the roll’s price.

We will skip next week’s commentary due to the holiday-shortened week; wishing a Happy Independence Day holiday to all clients, readers and friends.

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.

 Join Newsletter or Follow MCT on Social Media:

Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

Sign up for daily mbs market commentary and review previous commentaries by visiting our commentary category page. Join our email list for further MBS market news, subscribe to receive educational articles, whitepapers, relevant updates, and mortgage market commentary. 

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.

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.