The recap focused on the performance of MBS throughout September 2020. In the report, MBS are analyzed from different angles and the current state of the market is discussed.
MBS are loan packages or “pools” of securities that are backed by mortgages. Investors purchase these securities from lenders in order to earn interest from them. Generally, when interest rates are low, MBS prices increase, and when rates are high, MBS prices decrease.
In September 2020, the average coupon for mortgage-backed securities was 3.85%. This number is down from last month’s average of 3.90%. While this small decrease may not seem significant, it could result in a slight difference in returns for investors.
The current yield curve for MBS has continued to flatten as the Federal Reserve has kept its short-term interest rate stable. Yield curves show the relationship between short-term and long-term yields. A flattening of the curve indicates that long-term investments will yield less than they previously did.
Mortgage prepayments were up slightly in September, although the increase was not as significant as in previous months. Prepayments refer to the amount of loans that are prepaid before they are due. When prepayment speeds increase, investors must adjust their portfolios accordingly.
Mortgage-backed securities have performed relatively well in September, despite the volatility of the market. The average mortgage rate nationwide was 3.00%, its lowest since June 2018. This rate was 0.65% lower than it was one year prior. This decrease in the 30-year fixed rate could lead to an increase in MBS prices.
Overall, the mortgage-backed security market has fared relatively well in September. The average coupon decreased slightly, the yield curve flattened out, and the 30-year fixed rate saw a decrease. While the market remains highly volatile, MBS have performed better than expected thus far.
Mortgage-backed securities (MBS) are loan packages backed by mortgages that allow investors to earn interest from the loans. In September 2020, the MBS market remained volatile but still outperformed expectations. The average coupon for MBS was 3.85%, down slightly from last month’s 3.90% average, and the yield curve flattened as the Federal Reserve maintained its short-term interest rate stability. Additionally, mortgage prepayments were slightly up, though not as significantly as in previous months, and the average nationwide 30-year fixed rate was 3.00%, the lowest since June 2018 and 0.65% lower than one year prior. Though the market remains unpredictable, investors can anticipate relatively good returns from MBS.
This article was contributed on Oct 29, 2023
