The month of July brought about a general decline for most Freddie Mac mortgage-backed securities pools. Day-count seemed to be the only culprit at which analysts are pointing.
"Since seasonal variations plateau across the summer months, with very marginal seasonal declines from July through September reports, the dominant factor for summer discount speeds is day-count," a PaineWebber report stated.
"The swing factor was two fewer collection days, accounting for about a 10% slowdown in turnover payments," said Rajan Dabholkar, an analyst at Credit Suisse First Boston.
The two-day difference - from June's 22 days to July's 19.5 - accounted for a decline by 5% to 15%, with the only exception being 1996 6% bonds and 1995 6.5% bonds speeding up by 7% to 10% from June.
Seasoned premiums experienced a significant slowdown, by 15% to 20% or a three to five constant prepayment rate (CPR) slowdown from last month. A 14.5 CPR for 1991 9s was among the fastest seasoned premiums, while 1992/1993 vintage 7.5s to 8.5s prepaid at 12.3 CPR.
"Seasoned premiums are definitely showing signs of a prepayment burn-out," Dabholkar said.
Going forward, August will see a return to 22 collection days. PaineWebber is reporting that discount prepayments will speed up by 6%, while CSFB says the increase will be in the range of 10% to 15%.
Seasoned 8.5s and 9s should accelerate 15%, as a reaction to the rally in June, the PaineWebber report added. August speeds across the board are expected to reflect those found in June.
Because Freddie Mac speeds declined more than expected in July, estimates were changed for the Fannie Mae and Ginnie Mae speeds, which are due out today. Market observers were anticipating a 5% drop, and are now looking for something somewhat faster, about a 10% decline, than what was anticipated.
