Mortgage Strategy Monthly Report


Walt Schmidt, and Alexis Vilimas
Coupon Performance Deep Dive

There is generally a positive view toward the MBS/UST basis heading into the rest of 2024. We share that view after we first expressed it in 4Q23 after the large sell-off in September and October. Since then, spreads are tighter, but we think they have more room to run. However, the MBS market is hardly homogenous. There is a great deal of detail underneath the hood. In this missive, we review the basis from the perspective of the various coupons, which all have a unique risk/reward profile.

Benchmarking Baseline Speeds

Two questions dominated our prepayment discussions this month. One, were the faster-than-expected VA prepayment speeds in January a harbinger for faster conventional speeds in the near term? Two, how fast will conventional prepayment speeds be when/if the Fed starts to cut rates? The following analysis will addresseach question.

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