Mortgage Rates Rose 106 Basis Points Since May 1st, Agency MBS Prices Fall, Duration Increases

Confounded Interest ^ | 08/02/2013 | Anthony B. Sanders

[whitedog57]

The economic news, particularly surrounding Thursday’s jobless claims numbers and Friday’s job report, wreaked havoc on the Treasury 10 year yield. Despite that 10 basis point rise on Thursday and the 10 basis point drop on Friday, we are almost back to where we started at Wednesday close.

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Since May 1st, the US Treasury 10 year yield has risen almost 100 basis points.

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And the Bankrate 30 year fixed average (yellow) has risen as well by 106 basis points.

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The spread between the Bankrate 30 FRM and the 10 year Treasury yield is now 181 basis points, down from a peak of 284 basis points at the end of 2008. br30spust10

The primary-secondary spread (Bankrate 30 FRM less the Fannie Mae 30 current coupon rate) remains slightly elevated at 106 basis points.

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Before Fannie Mae and Freddie Mac were placed into conservatorship, the average primary-secondary spread was only 15 basis points.

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Agency mortgage-backed security prices have fallen, of course. The Fannie Mae 3.5 fell from 105-26 on May 1st to 100-31 on Friday close.

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And the Fannie Mae 3.5 duration continues to rise with rising mortgage rates (Bankrate 30 FRM is the green line).

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Both The Fed and China continue to grow their purchases on Treasury debt.

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The traditional wisdom is that rates rise as the economy improves … or investor lose faith. Hopefully the economy improves as The Fed forecasts. And hopefully Geithner gets his NY driver’s license too.

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[whitedog57]

And by Sept, we will see more increases.

[Pearls Before Swine]

Isn’t the Fed holding a lot of MBS securities? They’ll just bury the hit by holding to maturity. Jubilee!

[humblegunner]

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