Volume was light throughout the week as holidays began to take center stage. Overall, mortgages experienced better buying with interest in 5s through 6s. Participation was widespread with a continued presence from overseas with the 10-year Treasury yield holding to the 4.60% area. Originator selling averaged near the $1 billion per day area, with supply starting t including 5% coupons.

Mortgages have had an uneventful December so far. Lehman Brothers' MBS Index is flat on the month so far, with year-to-date performance an impressive 123 basis points. This compares to 83 basis points over for ABS and 124 basis points over for CMBS.

Heading into the New Year, analysts remain favorable on the sector. The positives include lower supply as a result of the slowing housing market, stable to higher demand from overseas, ongoing interest from banks, and continued low volatility. 

Mortgage application activity declined as expected for the week ending Dec.15 as the holidays approach. The Refinance Index dropped 14.6% to 1968.8 from 2304 previously. Year-over year, the index is up nearly 39%. Purchase activity fell nearly 6% to 436.5 from 464. As a percentage of total application activity, refinancings slipped to 50.8% from 52.6%.  ARM share was also lower at 23.6% versus 24.9%. 

The 30-year fixed mortgage rates increased just one basis point this week, according to Freddie Mac. The 30-year rate stands at 6.13%, up just two basis points since its low of 6.11% two weeks ago. Over this period, the 10-year Treasury yield is about 12 basis points higher. Rates remain near January lows, and are down 13 basis points from a year ago levels.

Meanwhile, the15-year fixed mortgage rates averaged 5.89% versus 5.86% last week. On the adjustable side, one-year ARM rates slipped one basis point to 5.44%, while 5-year hybrid ARM rates rose four basis points to 5.96%.  Rates remain at attractive levels, which should stimulate mortgage application activity once the holidays are past. 

Speeds in December are predicted to slow around 5% overall with discounts showing larger percentage declines versus premiums. Factors influencing the report include slowing seasonals. However, this is partially offset by a more favorable mortgage rate environment. The 30-year fixed mortgage rates averaged 6.24% in November, down 12 basis points from October's average, while the Refinance Index averaged nearly 8% higher.  The January prepayment reports are released Friday evening, Jan. 5. 

In January, speeds are seen holding fairly steady from December, helped by one extra collection day. Slowing in the 5% area is anticipated in February which sees a lower day count at 19 versus 21.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.