After what started off as a quiet week for the mortgage market, a series of bid lists put some pressure on spread product, creating some spread tightening for the week.
At Thursday's close, mortgage spreads were at 182 over the 10-year Treasury, in five basis points from last week's 187 over. "The first week of July was a general positive tone on the mortgage market," said Art Frank, head of mortgage-backed securities research at Nomura Securities.
Agencies also experienced a great deal of tightening. Ahead of last Friday's employment reports, the 10-year agency benchmark closed at 103 over the 10-year Treasury Thursday. Spreads were out as much as 107.5 over early Monday, coming in to 102.5 over Wednesday. For a brief time Thursday, agencies were actually trading at 99 over, the first time in a while the market has seen a double digit spread. "But it couldn't hold it," added Frank. Just two weeks ago, spreads were at 111 over.
Five-year agencies also came in slightly, to 80 over from 82 over.
However, the talk of the market was $2.1 billion in collateralized mortgage obligation bid lists, one of which totaled close to $600 million from an undisclosed bank. "That put a little pressure on mortgage spreads, which prior to that had done pretty well," Frank said.
"There does not appear to be any real supply/demand imbalance," he added. "There seems to be sufficient demand to absorb supply."
MPF Program Finalized
The Federal Housing Finance Board implemented its final core-mission activities rule, which removed the pilot status of the Mortgage Partnership Finance program and made it permanent.
As part of the rule, which goes into effect immediately after being published in the Federal Register, the FHFB kept the restriction that Federal Housing Administration loans can count as core mission activities as long as they are less than one-third of the acquired member assets held by a Federal Home Loan Bank.
"The regulatory push away from purchasing MBS into buying whole loans from member institutions and taking all the interest rate risk while sharing the credit risk seems to be the way that they're going to be going," said Frank. "So that would indicate with FHA loans in particular, that they're going keep buying sizeable quantities of them and Ginnie Maes will remain somewhat scarce as a result."
CMBS Bid List
Aside from the CMO bid lists, a commercial mortgage-backed bid list also came out Thursday morning. Two issues were on the list: $13 million in DLJCM 1999-CG3 and $20 million in GMACC 2000-C1 A2. Both were triple-A rated pieces, and spread talk was S+38 and S+39.5 basis points, respectively.
Furthermore, Chase Securities Inc. has recommended in its recent CMBS report that investors swap out of seasoned five year triple-A rated CMBS and move into seasoned 10-year or new five-year triple-A rated CMBS.