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MBS Day Ahead: How Long Before Forbearance Premium is Priced Out of Rates?

Posted To: MBS Commentary

I'm making an executive decision. It's time to simplify the discussion even more than we already have when it comes to what's freaking the mortgage market out. (If you're not up to speed on yesterday's news, you'll need to get caught up HERE .) Of course, "freaked out" is a relative term. After all, the average lender is offering 30yr fixed rates in the mid-to-low 3% range. How could we freak out about this? This is how: that same averge 30yr fixed rate is roughly 100bps higher versus levels implied by mortgage bonds. Moreover, that spread has been very well behaved historically–especially when it comes to rising too far above a baseline of 100bps. What could cause such a blowout? Here's where the simplification comes in. Let's stop thinking about…(read more)

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