Mortgage-Backed Securities Insights — Week of July 14, 2025
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Hi, I'm Jerry Levy, Managing Director of Texas Capital's Mortgage Securities Sales & Trading.
Housing remains in a slowdown. The median age of new homebuyers is now 38, which indicates the extent of the affordability crisis hitting first-time homebuyers. And that is with 30-year mortgage rates down to six and five-eights to six and three-quarters now. The move down is ironically due more to the mortgage basis tightening on reduced supply, than changes to rates. Refinance activity picked up last week. Actually, it's significantly higher than a year ago. But that's based off of those very low 2024 levels.
Tariff headlines and the signing of actual trade deals between now and August 1 are the focus post the passage of the Big Beautiful Bill that will increase the fiscal deficit. Interest rates and the Fed cuts? Fed fund futures are still pricing in two cuts for this year, and between three to four cuts for 2026, with year-end rates of 3.83 for this year and 3.12 for next year. And that's from today's four and a quarter to 4.50.
The June FOMC minutes highlighted why we are in this wait-and-see environment. Ten voters see two cuts in 2025, seven see no cuts in 2025 and two see one cut in 2025. Christopher Waller and Michelle Bowman were the only ones who would have cut in July. Against this backdrop, we are seeing a historically unprecedented pressure campaign against Chairman Powell by the administration led by Trump, who tweeted out over the weekend that Chairman Powell should "resign immediately." FHFA Director Pulte added to his social media blitz 100 tweets, by the way, just in June, with a news article on Friday saying that there are rumors that Powell will resign due to "political bias" and "deceptive Senate testimony." And that refers, of course, to the Fed's building renovation. OMB Director Voight added that "Powell grossly mismanaged the Fed," while former Fed Governor Warsh said regime change is necessary and that "it's about breaking some heads."
DB strategist said this weekend that this unprecedented campaign, if successful, will undermine international confidence in U.S. assets, at least in the short run, and that this risk is being underestimated. One note, however, U.S. long-end yields, the 10-year and the 30-year near 5%, have outperformed in 2025 versus German, UK and Japanese long-end debt. German debt is at a generational high in terms of yield going back to 2011, for example. Last week we saw that the U.S. auctions went well. It can be argued that part of the pressure on our trading partners is the increased fiscal spending by those countries, which is in direct response to policy and tariff initiatives of the Trump administration. The USD 10-year has been trading in its tightest yield range in three years, and the three-month 10-year vol, a technical term, is at a multi-year low. Domestically, the administration, as we mentioned last time, is behind the supplemental leverage ratio, the SLR reform for banks, which will free up existing bank capital to support larger investment in treasury and Ginnie securities. Talking about Ginnie Securities: Banks have been the main buyer of CMOs earlier this year. There were 38 billion created in February that declined to 30 billion in May. And just reported 23 billion in June.
It certainly will be an interesting second half of 2025. Thank you.
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