May prepayments were in-line to slightly faster than consensus expectations, especially for GNMAs. Speeds were expected to be unchanged to slightly faster for 4.5s, 5s, and 2004 vintage 5.5s and 6s, while other coupons and vintages were expected to slow around 5% on average. Instead, speeds on higher coupons were mostly faster, while lower coupons and unseasoned vintages picked up more than expected. Still, the report, which reflected May activity, was generally uneventful. Overall, prepayments remain fast on discounts, while premiums remain little impacted by rate levels.
JPMorgan Securities reported that paydowns were $52 billion, versus expectations of around $50 billion, resulting in $5.5 billion of net supply. With increases in speeds expected for June, analysts predict overall fixed-rate agency supply to be negative $8 billion.
Current mortgage rates are 25 to 30 basis points lower than those impacting the May report, according to Lehman Brothers. As such, refinancings are expected to pick up in coming weeks. In addition, there is one extra business day in June and seasonals tend to be higher. Currently, speeds are expected to increase between 15% and 20% in June. Specifically, JPMorgan expects a 17% rise in June speeds. Although the current MBA Refinance Index suggests a 15% rise, analysts said lags have been fairly short and the recent uptick could impact June speeds. The firm's short-term projections were based on a 2500 to 2600 Refinance Index, analysts said.
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