The April report was the highest prepayment month on record, said a report by JPMorgan Securities. The month’s report showed a rapid acceleration in 15-year 5s and 5.5s as well 30-year 6s.
JPMorgan also said that April’s report was punctuated by faster than expected speeds on cusp coupons. For example, FNMA 6s of 2002 prepaid at 50% CPR, an acceleration of about 34% compared to the March report. Analysts expect another 15% acceleration in May.
The biggest surprise in the April report may have been the more rapid speeds on new 15-year paper, particularly Dwarf 5s and 5.5s. This sector accelerated more than 30-years.
Dwarf 5s of 2002 prepaid at 27% CPR, according to analysts. This is an increase of 73%. Meanwhile, Dwarf 5.5s prepaid at 50% CPR, which is an acceleration of 39% compared to March.
In commentary, JPMorgan said that there are clear indications of shorter lags between applications and closings. Speeds on higher coupons as well as seasoned collateral still display lower reactivity.
Prepayments on 2002 30-year Golds are still outpacing FNMAs. For instance, Gold 5.5s and 6s were almost 6% CPR faster than FNMAs, despite the 3 basis points lower WAC.
Given the same number of collection days between April and May, analysts think that overall speeds would pickup by 5% to 8% in May, with 2002 6s displaying the greatest acceleration at 15%.