MBS Weekly Market Commentary Week Ending 2/5/2021

Long-term 30-year yields have risen to 1.983%, the 10-year is currently yielding 1.182%, and the Fannie Mae 30-year current-coupon spread to the 5/10-year blend tightened to +65. The spread from the current coupon to Treasuries is the lowest in more than 19 months while yields on Treasuries closed at their highest in more than 10 months.

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According to data published by Freddie Mac, U.S. 30-year home mortgage rates fell to 2.73% from 2.79%. The average 15-year rate fell to 2.21%, up from 2.21% a week earlier. Refinance applications increased 11.4% for the week ended Jan. 29, according to the Mortgage Bankers Association, following the previous week’s 5.0% drop. The purchase index increased 0.1%. The conventional refinance sub-index rose 12.3% while the government sub-index was up 8.3%. VA refinancing applications increased 8.1% while FHA rose 9.3%.

UMBS 30-year coupons outperformed their hedges last week, with the 3% coupon seeing the worst performance in a 1 tick drop. According to Bloomberg data, the top 3 fastest paying majors were all Fannie Mae 3% coupons, while in the latest speed report the 3% coupon overall dropped less (down 8% vs. down 12%). The 3% coupon has a WAC of 3.76%, leaving room for strong refi incentive.

Economic Calendar:

  • Tuesday: Class A Notification
  • Wednesday: CPI, MBA mortgage applications
  • Friday: Class B Notification