MBS Weekly Market Commentary Week Ending 1/8/2021

Last week’s Treasury selloff marked the quickest reversal in government debt yields since the collapse in March. The prospect of a unified Democratic representation in Federal offices fueled stimulus bets and contributed to a further steepening yield curve (See 5-30 Year Spread). Long-term 30-year yields have risen to 1.875%. The 10-year is currently yielding to 1.117%. The Fannie Mae 30-year current-coupon spread to the 5/10-year blend tightened to +67, the lowest in 18 months.


*The MBS Market Commentary link will take you to MCT’s website.* Click to enlarge According to data published by Freddie Mac, U.S. 30-year home mortgage rates fell to 2.65% from 2.67%. The average 15-year rate fell to 2.16%, down from 2.17% a week earlier. Refinance applications increased 3.0% for the week ended Jan. 1, according to the Mortgage Bankers Association, following the previous week’s 8.8% drop. The purchase index decreased 1.6%. The conventional refinance sub-index increased 0.8% while the government sub-index was up 10%. VA refinancing applications increased 14.7% while FHA rose 2.3%. While the proportion of overall mortgage loans in forbearance for the week ended Dec. 27 remained steady at 5.53% from the week before, Ginnie Mae homeowners in forbearance rose to the highest in 8 weeks.

Cumulative 5-day performance of MBS coupons, relative to Treasuries, was mixed last week. Fannie 30-years underperformed by 2 ticks on lower coupons. Higher coupons outperformed their hedges by 2-3 ticks. Lower-coupon Ginnies lagged 3-5 ticks and higher coupons were mostly flat. Fannie 15-years were also relatively flat.

This week, Lael Brainard and Jerome Powel will deliver speeches on economic outlook. Conditions have changed since the Fed last met – more fiscal stimulus passed, and Democrats have split the Senate. The possibility of larger, more robust stimulus is on the table and that could cause the Fed to become more hawkish. However, if leaders of the Fed continue to display a comfortability with rising rates, we should expect rates to continue that way. Economic Calendar:

  • Tuesday: NFIB small business optimism; JOLTS job openings; Fed Governor Lael Brainard
  • Wednesday: MBA mortgage applications; CPI; monthly budget statement; Fed’s Beige Book
  • Thursday: Jobless claims; import/export prices; Bloomberg consumer comfort; revisions of
    Philadelphia Fed manufacturing survey; Fed Chairman Jerome Powell
  • Friday: Producer prices; Empire manufacturing; retail sales; Bloomberg January U.S.
    economic survey; industrial production; business inventories; University of Michigan