Thursday, May 14, 2020 |
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| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Kevin Doyle • Lonnie Harris • Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer Nicole Burczyk • Natalie Regan • Aaron Stoffer • Chuck Honeywell |
| US Treasury Market | |||||||||||
| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 05/07/20 | 0.10 | 0.11 | .014 | 0.15 | 0.13 | 0.19 | 0.29 | 0.49 | 0.63 | 1.05 | 1.31 |
| 05/08/20 | 0.10 | 0.12 | 0.15 | 0.15 | 0.16 | 0.21 | 0.33 | 0.53 | 0.69 | 1.12 | 1.39 |
| 05/11/20 | 0.09 | 0.12 | 0.16 | 0.16 | 0.17 | 0.24 | 0.36 | 0.56 | 0.73 | 1.16 | 1.43 |
| 05/12/20 | 0.10 | 0.13 | 0.16 | 0.16 | 0.17 | 0.22 | 0.34 | 0.53 | 0.69 | 1.11 | 1.36 |
| 05/13/20 | 0.10 | 0.13 | 0.15 | 0.15 | 0.16 | 0.20 | 0.31 | 0.50 | 0.64 | 1.07 | 1.35 |
Source: U.S. Department of the Treasury, as of 05/13/2020
SUPPLY AND DEMAND
Traditional 30-year mortgage loans with rates below 3% are inching closer as the Fed continues to stimulate the U.S. economy. On Monday the Federal Reserve of New York bought contracts for mortgage backed pools with a coupon of 2%, the lowest coupon ever purchased by them according to a spokesman. That move suggests lenders can easily sell mortgage loans at rates below 3%.
Interest rates on traditional mortgage loans have stayed above 3% in recent months despite a sharp drop in benchmark borrowing costs. While the yield on the 10 year Treasury has dropped 120 basis points since the first of the year for example, rates offered by lenders have fallen less than half of that.
Mortgage lenders have held back, and rightly so, on significantly lowering offering rates because of deteriorating credit fears and just the ability to physically handle the loan volume, especially for refi’s. Purchases referenced above by the Fed may finally give lenders the courage to issue 30 year mortgages as low as 2.50%.
According to a JPMorgan research report, the Fed currently holds about 30 percent of the agency MBS universe (2 of 6.7 trillion). It is estimated that they will own more than 40 percent of that market by year end. With this in mind, basis point spreads on agency MBS securities in the triple digits, that we are enjoying now, should tighten just as they did in the last crisis.
With yields on Treasuries almost unpalatable, we have seen great interest in pools like the one below.
Source: Bloomberg L. P.
Traditional 30-year mortgage loans with rates below 3% are inching closer as the Fed continues to stimulate the U.S. economy. On Monday the Federal Reserve of New York bought contracts for mortgage backed pools with a coupon of 2%, the lowest coupon ever purchased by them according to a spokesman. That move suggests lenders can easily sell mortgage loans at rates below 3%.
Interest rates on traditional mortgage loans have stayed above 3% in recent months despite a sharp drop in benchmark borrowing costs. While the yield on the 10 year Treasury has dropped 120 basis points since the first of the year for example, rates offered by lenders have fallen less than half of that.
Mortgage lenders have held back, and rightly so, on significantly lowering offering rates because of deteriorating credit fears and just the ability to physically handle the loan volume, especially for refi’s. Purchases referenced above by the Fed may finally give lenders the courage to issue 30 year mortgages as low as 2.50%.
According to a JPMorgan research report, the Fed currently holds about 30 percent of the agency MBS universe (2 of 6.7 trillion). It is estimated that they will own more than 40 percent of that market by year end. With this in mind, basis point spreads on agency MBS securities in the triple digits, that we are enjoying now, should tighten just as they did in the last crisis.
With yields on Treasuries almost unpalatable, we have seen great interest in pools like the one below.
- GNMA POOL MA6629 15 year 2.50%
- In the 291 PSA base case it has a projected average life of 5.24 years
- Its 1.39% yield is 104 basis point spread to the 5 year Treasury
- Zero risk base
Source: Bloomberg L. P.
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.
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