MBS Weekly Market Commentary Week Ending 7/19/19

Treasury yields declined last week, with the week/week change led by the intermediate and long sectors of the market.  The 10-year note closed at 2.056%, down about 7 basis points on the week, which left the 2-10 years spread at +23.5 basis points.  The drop in the 10-year yield was entirely due to a decline in the 10-year “real” yield, as the 10-year TIP declined by about 8 basis points on the week while the 10-year break-even inflation rate (i.e., the on-the-run minus the TIPS yields) increased by about 1.5 basis points.  Overseas yields also moved lower; the German 10-year yield declined 12 basis points to -0.33% (!), while the French 10-year yield also moved into negative territory, ending the week at -0.07%.

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

Overall MBS spreads were roughly unchanged on the week, with the Fannie current coupon spread over interpolated Treasuries declining by less than a basis point.  Duration-adjusted performance was biased in favor of lower coupons, especially in the Ginnie sector, where Ginnie II 3s and 3.5s outperformed their 10-year hedge ratios by 7 and 6 ticks on the week, while fuller coupons such as GNII 4s and 4.5s lagged by 2/32s and 5/32s, respectively.  Thursday’s Class C notification saw the GNII 4 roll spike to just under a quarter-point, perking up after Class A notification on July 11th, as shown in the chart below. Click to Enlarge Coupon swaps were compressed by the strong performance of lower coupons, while GinnieII/Fannie swaps were mixed; the 3% and 3.5% widened by 3-5 ticks while the 4.5% swap deteriorated by almost a quarter point.

The Freddie Mac survey rate reported at 3.81% last week, while the MBA’s refi index printed at 1827, a 1.5% gain over the prior week’s report (which arguably was distorted by the Independence Day holiday).  The accompanying scatterchart, which compares the refi index to the Freddie Mac survey rate since early 2015, indicates that while the index at a sub-2000 level is not yet indicating a “refi wave,” it suggests that refi activity (as indicated by the red box) is in line with its recent history at the current level of 30-year mortgage rates.  It’s noteworthy that the last time the survey rate was in the 3.75% neighborhood rates were rising rapidly after the election; the last time rates were trending lower to the 3.75% area (the week of 2/4/16) the index was coincidentally also at 1827. Click to Enlarge One other interesting development is the relatively high level of ARM rates, at least for the average rate reported by vendors such as Bankrate.com.  The accompanying chart indicates that the reported national average 7/1 ARM rate is currently about 14 basis points higher than the 30-year fixed rate.  This is quite unusual; the two rates were inverted during the financial crisis as well as briefly in 2012, when fixed rates plunged once the Fed began buying large amounts of fixed-rate MBS. Click to Enlarge

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 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.