March prepayments are expected to rise by two to five CPR as February lows in rates impact prepays just as seasonals are increasing, said Deutsche Bank Securities. For instance, analysts expect conventional 5s to pick up by three to four CPR and to remain at those levels throughout April and May. The recent 40 basis point rise in mortgage rates could start to cut into prepay rates in April and May, report analysts, but only on higher coupons. All told, 30-year prepays on 30-year 5.5s could rise by three to four CPR in March while decreasing by two CPR in April.
"Our expected prepayment speeds place mortgages well within a very comfortable zone, with turnover speeds still quite high (given the robust housing market) and refinancing speeds remaining subdued given the recent increase in mortgage rates," Deutsche Bank analysts wrote.