MBS Weekly Market Commentary Week Ending 4/15/22

MBS spreads, basically the yield on a mortgage backed security minus the yield on the corresponding treasury, continue to widen, along with bid-ask spreads in the TBA market. This has made the TBA market more illiquid than usual, which is having an impact on front-end rate sheets. Bid-ask spreads have increased from about one tick to 10 ticks, an increase of nearly 30 basis points. 

 

Like TBA spreads, MBS spreads are wider than historical averages, though not quite at the wide levels of early 2020. The last check showed spreads around 1.15% versus historical averages around 0.9%. Price differences between the months are increasing as rates rise, which will translate into higher lock costs. The Federal Reserve is all but certain to hike the Fed funds rate 50 basis points at its May meeting, and even though it has been clearly telegraphed, we have seen a sell-off regardless.

 

Though all the above factors have led to mortgage rates being less sensitive to the movements of the 10-year U.S. Treasury, 30-year fixed-rate mortgage rates have not been this high since February 2011. There are some indications that mortgage rates would move lower if the 10-year U.S. Treasury stabilizes. 

 

Much of this is being driven by fears of the Federal Reserve’s imminent tightening of monetary policy, which includes an exit from the MBS market. After helping manage currency and acting as the lender of last resort for most of the Federal Reserve’s existence (since being established in 1913), it has now been tasked with buying up assets to support the economy. The Federal Reserve’s balance sheet has $8.9 trillion of assets, which should be a high-water mark since the Fed is expected to start reducing its balance sheet soon

 

While yield-curve inversion, like we saw last week, adds to the narrative around growth risks, a recession is not necessarily imminent, at least this year. Markets currently fear that the Fed is going to cause a recession in 2023 as increasing interest rates stifle economic growth. There are several reasons that may not be the case as we have strong buffers against a slowdown. The employment market is still red-hot, corporate bond yields have not risen, and economic indices are still well above any level from the decade before March 2021. 

 

With a lot of sharp moves in the market this week, it helps to have actionable recommendations to protect your business and pipeline. Join MCT for an Industry Webinar on April 19th at 11AM PT titled Taper Tantrum Two? Comparing 2013 to 2022 & What Lenders Can Do. In this webinar, MCT’s Phil Rasori, Justin Grant, and Andrew Rhodes will compare 2013 to 2022 in terms of the deteriorating market, market liquidity in specific coupons, loan sale execution liquidity, and investor pricing performance.

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 9/23/22

The phrase “Don’t fight the Fed” was first introduced in the 70’s (a lovely time for inflation lovers) and for most of the last few decades, the phrase meant that the Fed has the market’s back and investors are rewarded for keeping their feet on the gas pedal as the Fed injects liquidity, dampens volatility, and drives outsized returns. But fighting the Fed cuts both ways, and Fed officials are now intent on taming prices, even though the economy is already in a technical recession. Investors have been forced to consider their positions accordingly.

MBS Weekly Market Commentary Week Ending 9/16/22

There are the unfortunate costs of reducing inflation (higher interest rates, slower growth, and softer labor market conditions) that will bring some pain to households and businesses, but a failure to restore price stability would mean far greater economic pain. Markets have interpreted recent Fed comments as: “We are going to raise rates higher and keep them there longer than the market is anticipating. People now understand the seriousness of our commitment to getting inflation back down to 2%. If we have a hard landing and cause a recession, so be it.”

MBS Weekly Market Commentary Week Ending 9/9/22

This year’s run up the coupon stack has led to the destruction of both purchase supply and refinance demand, which has drastically reduced prepayment activity. The Fed’s QE4 created a refinance bonanza in 2020 and 2021, but with the Fed leaving the MBS purchase space next week for the foreseeable future, that party is over. The MCT Review this week examines August prepayment speeds that were released yesterday and what to expect for the remainder of the year.

MBS Weekly Market Commentary Week Ending 9/2/22

In addition to raising the overnight Fed funds rate, the Fed is exiting the MBS and security purchase space as it wraps up QE4. The Fed will reduce its asset holdings by not reinvesting the funds received from maturing securities into new securities as it has been doing over the past two years. The MCT Review this week examines the Fed’s plans and the ultimate impact on a volatile bond market.

MBS Weekly Market Commentary Week Ending 8/26/22

This week’s commentary discusses market preparation and reaction to Fed Chairman Powell’s speech in Jackson Hole. As the Fed puts the brakes on the economy, the central bank is willing to let unemployment go up as a trade for getting inflation under control. Rate hikes are expected to continue as the Fed prioritizes driving down inflation rather than economic growth. Read the rest of this week’s market commentary for more information on the Fed and the MBS market.

MBS Weekly Market Commentary Week Ending 8/19/22

Every week the mortgage industry has new headlines. This week saw talk of Wells Fargo scaling back its mortgage division (possibly greatly exaggerated), MBA mortgage applications dropping to a 22-year low, and U.S. retail sales resiliently remaining flat despite a drop in gasoline prices, though the biggest story was Ginnie Mae and FHFA releasing jointly updated seller/servicer requirements.