| Wednesday, April 9, 2025 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 04/02/25 | 4.31 | 4.31 | 4.23 | 4.02 | 3.86 | 3.83 | 3.89 | 4.00 | 4.13 | 4.53 | 4.50 |
| 04/03/25 | 4.31 | 4.29 | 4.18 | 3.91 | 3.69 | 3.66 | 3.73 | 3.86 | 4.03 | 4.49 | 4.47 |
| 04/04/25 | 4.29 | 4.25 | 4.10 | 3.84 | 3.66 | 3.64 | 3.71 | 3.84 | 4.00 | 4.44 | 4.41 |
| 04/07/25 | 4.31 | 4.27 | 4.16 | 3.91 | 3.77 | 3.76 | 3.87 | 4.02 | 4.19 | 4.66 | 4.62 |
| 04/08/25 | 4.31 | 4.30 | 4.13 | 3.87 | 3.73 | 3.76 | 3.92 | 4.10 | 4.30 | 4.82 | 4.77 |
The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is always subject to change. This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, L.L.P. As of: close of business 4/8/2025.
Over the next two years, this created a great opportunity for home owners to lock in a mortgage rate at a very low level. In March of 2022, we all know what happened next; the Fed began hiking rates dramatically.
The chart below shows the total amount of outstanding MBS by coupon. Within the 2-year ZIRP period, indicated by the green arrows, you can see the UMBS 30YR 2.0 and 2.5’s amount outstanding grew exponentially.
Although our bonds portfolios didn’t appreciate it at the time and some are still recovering, with the Feds 525 bps move in 2022-23, there was a great future investment opportunity being created; the deeply discounted MBS.
We are able to invest in deep discount 1.50% and 3.00% coupon MBS pools, which have ~2.40% to ~4.00% underlying mortgage rates while the current mortgage rate remains in the 6.00-7.00% range. These mortgages are prepaying about as slow as they possibly can, as there is currently no economic incentive to refinance.
Traditionally, what are the MBS investors biggest concerns?
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Optionality/Prepayments: both are muted with deeply discounted pools. There is little to no incentive to refinance or move, as giving up a mortgage in the 2-4’s for a mortgage in the 6’s is not ideal even if rates move lower
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Convexity: MBS historically have negative convexity (WAL extends as overall interest rates rise and WAL contracts as rates fall). However due to the deep discount, these lower coupons actually have a positively convex profile, like a Treasury.
If rates move up, these can experience little to no extension in cash flow, as most are already paying as slow as they possibly can. Therefore, you still capture great yield with steady P&I cash flow.
If rates move lower, you can experience little to no pick up in cash flow, as refinancing is a long way from making economic sense. Rates would have to move dramatically lower for refinancing to make sense and to see prepayments pick up in a meaningful way. You maintain your duration out on the curve and any prepayments that do come in enhance your yields.
Please reach out to your CCB representative to discuss if this structure is a good option for your balance sheet.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value