Short Term CPR Predictions for Agency MBS: July 2022

The mortgage stack continued to slow in June, and infima forecasts that broad market slowdown to continue through September despite a 50+ basis point rally in mortgage rates since late June. Some of the largest CPR drops are occurring in 3’s and 3.5’s, bonds that traded at premium prices early in 2022. Within most of the coupons, more seasoned cohorts are projected to hit slower speeds than newer production. 2019-2020 production 3.5’s are projected to remain relatively fast by historical norms, with CPR speeds forecasted to remain above 12% CPR over the next 3 months. This is in contrast with 2018 and older cohorts, that are projected to be 2-3% CPR slower. This points to the larger theme of prepayment differentials amongst cohorts and stories within most of the coupons. There are some sizeable prepayment differences being realized and forecasted to continue, which should facilitate buying and selling opportunities going forward.