Agency Finance Market Update - Q3 2021

Global uncertainty related to COVID-19, along with geopolitical risks in Afghanistan and China, weighed on Equity markets in the third quarter, causing a pause to their seemingly never-ending march higher. Rates had been range-bound until the September 22 Federal Reserve meeting, which prompted a significant increase in yields, with the belly of the US Treasury curve shifting almost 20 basis points higher (the 10 yr UST yield is currently hovering in the low-1.50s). Notable from that meeting was the Fed’s clear communication around plans to start decreasing the size of their balance sheet in November and finishing the reduction by mid-2022. 

Agency CMBS spreads leaked wider into August, largely driven by a combination of rate movements and a lack of investor demand, but stabilized into September. Origination volumes were heavy into July and August as borrowers looked to take advantage of lower interest rates during that time. As we near year end, Freddie and Fannie have been increasingly mindful of their lending mandates, both pulling back in pricing after the heavy origination volumes at the beginning of the quarter. For a Tier 2, 10 yr fixed-rate deal around $10 to $25 million in size and with average mission characteristics, we are seeing all-in rates around 3.35%-3.85%, depending on deal specifics. For similar floating-rate deals, we are seeing all-in rates around 2.60%-3.00%, also depending on deal specifics. 

In the Ginnie Mae market, origination volumes have been chunky yet steady over the past quarter, with volumes largely concentrated in rate reductions. Spreads have been stable as investor demand has kept pace with supply. Exclusive of MIP, 223f loans are currently trading around 2.45% while 221d4 loans are trading around 3.05%.