For the February prepayment report, overall fixed-rate conventional speeds were lower by 11%, mainly a result of a two-day drop in day count as well as slightly higher rates over the refinance period. Newer 6s were much slower than expectations while 5s were faster than initially projected. March's prepayment reports should reflect half the rally the market has felt since December, according to RBS Greenwich Capital analysts. Together with increased day count and seasonals, all three factors should push speeds faster by roughly 15% to 20%. Aggregate FNMA 5s dipped by only 3%, which is consistent along 2003 to 2005 production, but 2006 5s increased 12% to 4.2% CPR. Aggregate speeds on 5.5s dipped by 9%, but with a 19% drop for 2006 production to 6% CPR. For 6s, aggregate speeds were surprisingly down by 19%, with 2006 production down 29% to 10% CPR. According to RBS, the February report was favorable for IOs and this sector is expected to experience a modest amount of tightening from this and the lower volatility saw today.
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