As expected, prepayments slowed in July primarily due to a lower number of collection days - 20 versus 22 days in June. In general, FNMA speeds were anticipated to slow around 10% in 4.5s and 5s, and 12% to 13% in higher coupons. Speeds declined slightly more than that with the exception of 6s, which were essentially in-line. Analysts from Barclays Capital suggested the slightly greater slowing than expected - particularly in discounts - is also evidence of the weakening in the housing sector.
FHLMC Gold speeds reported similar percentage declines for the most part, though 2005 vintage 6s declined substantially more at 19% versus 10% for FNMAs. Overall, speeds for Gold 5.5% coupons and lower are similar to just slightly slower than Fannie cohorts. Speeds on certain Freddie 6% vintages are around 1% to 2% CPR, slower than corresponding FNMAs.
JPMorgan Securities analysts said that the most recent report considerably favors up-in-coupon in 30-year collateral. They added that it is not likely that August speeds would rise above June levels despite the higher seasonal turnover and three additional collection days in August compared to July. Analysts added that they do not expect the recent rally to impact prepayments until September when there are three fewer collection days and weaker seasonals, which should be more than enough to offset lower rates.
GNMA speeds were mixed. 6% and 6.5% coupons were predicted to slow 12% to13%, but declined in the 5% area with the exception of 2002 vintage 6s. Barclays said the faster-than-expected speeds are likely due to a pickup in servicer buyout activity. For lower coupons, 2005 vintages declined less than expected while other vintages were in line to slower than anticipated.
Credit Suisse analysts estimate July paydowns at $34.1 billion, down from $38.4 billion in June. They report fixed rate net issuance was little changed at $20.7 billion with 30-year conventional net issuance at $26.1 billion and 15-year issuance at -$5.4 billion. They estimate that Ginnie Mae net issuance was flat at $2 billion.
Meanwhile, JPMorgan analysts said that they expect the growth in the 30-year sector to continue, expecting the it to average about $22 billion per month for the rest of 2006. Analysts noted that the market is already on pace to go over $280 billion in net growth in 2006, which could exceed the supply observed in 2000.
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