This year's theme in the MBS market appears to be the potential slowing in the housing market and by extension, the resulting impact on prepayments. While there are some signs that housing may be slowing, a clearer idea of this isn't likely until the spring, when housing activity tends to pick up from the winter doldrums.

Elevated prepayments in the last two years have been due to strong home price appreciation, the increasing array and use of affordability mortgages, attractive mortgage rate levels and the steep yield curve. Although not to the level seen in the recent past, speeds on discounts are expected to remain relatively strong. Alec Crawford, managing director and head of agency MBS strategy, expects speeds will stay on the fast side despite a slowdown in home price growth. "There is still a fair amount of home price appreciation in the market," he said. "Tapping home equity is still a very strong trend among borrowers."

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