MBS Weekly Market Commentary Week Ending 11/27/2020

Intermediate Treasury yields fell 2bps to 0.83% to finish out the week. The 30-year Treasury is currently yielding 1.56%, relatively unchanged from the start of the week. The Fannie Mae 30-year current coupon spread to the 5/10 year blended widened 1bp to +76.

According to data published by Freddie Mac, U.S. 30-year home mortgage rates remained steady at 2.72 percent. 15-year rates remained steady at 2.28 percent. Mortgage applications increased 3.9 percent as of Nov. 20 from the previous week. Existing home sales were up 4.3 percent as of Oct. 31 from September. Data published by the Mortgage Bankers Association shows refinance activity increased 4.5% for the week ended Nov. 20, following the previous week’s 1.8% decline. The refi index stands 78.7% higher this year compared to last year. The purchase index increased 3.5% after also increasing 3.5% last week.

Cumulative 5-day performance of MBS coupons, relative to Treasuries, was mixed last week. Fannie 30-years outperformed the Treasury by 1-4 ticks on lower coupons. The 3.5 coupon continued its rocky performance, by lagging 3 ticks behind. Ginnies outperformed the 10-year benchmark by and large. The 2s were the strongest in the security, outpacing the benchmark by 8 ticks. Fannie 15-years were a bit more mixed with the lowest and highest coupons finishing the week roughly flat. 15-year 2.5s and 3s lagged the 5-Treasury by 4 ticks.

On Wednesday, Fed minutes were released detailing the FOMC discussions from the November 4-5 meeting. In their talks, Federal Reserve officials discussed providing more guidance on their bond buying strategy. “Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon,” according to meeting minutes. The Fed is currently buying U.S. Treasury and mortgage-backed securities at a combined pace of about $120 billion per month, with purchases spread out evenly across maturities Key events this week:

  • Monday: Pending Home Sales
  • Wednesday: MBA Mortgage Applications
  • Friday: Payrolls