Thursday, January 30, 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 • Kelley Frye • 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 |
| 01/23/20 | 1.55 | 1.55 | 1.56 | 1.55 | 1.51 | 1.51 | 1.55 | 1.65 | 1.74 | 2.03 | 2.18 |
| 01/24/20 | 1.54 | 1.54 | 1.55 | 1.55 | 1.49 | 1.48 | 1.51 | 1.61 | 1.70 | 2.00 | 2.14 |
| 01/27/20 | 1.53 | 1.55 | 1.57 | 1.53 | 1.44 | 1.41 | 1.44 | 1.52 | 1.61 | 1.91 | 2.05 |
| 01/28/20 | 1.53 | 1.57 | 1.58 | 1.53 | 1.45 | 1.45 | 1.47 | 1.56 | 1.65 | 1.95 | 2.10 |
| 01/29/20 | 1.52 | 1.56 | 1.57 | 1.51 | 1.42 | 1.39 | 1.41 | 1.51 | 1.60 | 1.89 | 2.05 |
Source: U.S. Department of the Treasury, as of 01/29/2020
Source: Bloomberg L.P.
Caution: Accelerating Pre-payments Ahead
The 10-year benchmark Treasury note is trading at 1.56% - only 20 bps above its lowest yield in 80 years (1.36% on 7/3/16). Likewise, the 30-year Treasury bond is trading at 2.03% - only 8 bps above its lowest yield in 80 years (1.95% on 8/27/19).
Accordingly, the Overnight National Average of 30-year fixed rate mortgages is 3.66% - only 34 bps above its lowest rate in 80 years, which was 3.32% on 9/27/16. Not only is the cost of borrowing for homeowners near all-time lows, but mortgage rates have declined quickly and significantly in recent years (down from 4.82% just 14 months ago).
Given the incentive to re-finance high cost mortgages, portfolio managers should expect pre-payments to accelerate, as indicated by the MBA Re-financing Applications Index below. More specifically, portfolio managers should identify and monitor their holdings of mortgage pools with unamortized premiums that are “at risk” of faster pre-payments (at PAR).
Below is an example of our color-coded HEAT MAP. This analysis, along with the color-coded CRITERIA, is intended to assist you in monitoring your portfolio of both fixed-rate and adjustable rate mortgages.
In addition to reviewing the changes in pre-payment speeds and the impact on book yield, the HEAT MAP highlights the pools that have paid-down to odd-lot status and those with a relatively small number of loans. Regarding ARMs, there is additional criteria that highlights the weighted average loan size and identifies the mortgage originators that tend to aggressively promote re-financing.
Please let us know if you’d like our review of your MBS portfolio.
The 10-year benchmark Treasury note is trading at 1.56% - only 20 bps above its lowest yield in 80 years (1.36% on 7/3/16). Likewise, the 30-year Treasury bond is trading at 2.03% - only 8 bps above its lowest yield in 80 years (1.95% on 8/27/19).
Accordingly, the Overnight National Average of 30-year fixed rate mortgages is 3.66% - only 34 bps above its lowest rate in 80 years, which was 3.32% on 9/27/16. Not only is the cost of borrowing for homeowners near all-time lows, but mortgage rates have declined quickly and significantly in recent years (down from 4.82% just 14 months ago).
Given the incentive to re-finance high cost mortgages, portfolio managers should expect pre-payments to accelerate, as indicated by the MBA Re-financing Applications Index below. More specifically, portfolio managers should identify and monitor their holdings of mortgage pools with unamortized premiums that are “at risk” of faster pre-payments (at PAR).
Below is an example of our color-coded HEAT MAP. This analysis, along with the color-coded CRITERIA, is intended to assist you in monitoring your portfolio of both fixed-rate and adjustable rate mortgages.
In addition to reviewing the changes in pre-payment speeds and the impact on book yield, the HEAT MAP highlights the pools that have paid-down to odd-lot status and those with a relatively small number of loans. Regarding ARMs, there is additional criteria that highlights the weighted average loan size and identifies the mortgage originators that tend to aggressively promote re-financing.
Please let us know if you’d like our review of your MBS portfolio.
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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