Primary-to-secondary mortgage market spread compression that has kept rates relatively low despite upward pressure from bond yields may be nearing its limit, according to one investment strategist.
The assertion by Scott Buchta, head of investment strategy at Braver Stern Securities in a report Monday suggests that rates could rise more dramatically from here.
Buchta said the 10-year Treasury's recent move out of its 3.25% to 3.50% trading range has significant implications for rates and prepayments. At press time Monday morning that yield was at 3.67%. (The 10-year can be a rough indicator of long-term mortgage rates.)
The Braver Stern strategist said he believes there will be a continued slowdown in lower coupon (4.5% and 5%) prepays over the next several months.
