The Pipeline

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Welcome to the Pipeline, Andrew Davidson & Co., Inc.‘s newsletter, a “pipeline” of relevant and useful information, focused on recent trends, changes, and advances in the mortgage investor’s market.

Issue No. 183 | Sep 2023

SPREADS, CURRENT COUPON & ccLDM
Eknath Belbase

With mortgage spreads to 10-year Treasuries elevated for over a year now, we open with two articles related to mortgage spreads and current coupon, followed by an article on our new climate conditioned LDM (ccLDM).

BATTLE OF THE BULGE: MORTGAGE RATES TO TREASURY
Mickey Storms

As we all know, mortgage rates are high and significantly so when compared with the 10-Year Treasury rate (UST 10-Year). Since April of 2005, the primary market mortgage rate spread to the UST 10-Year has bulged to more than 100 basis points (bps) over its historical average of 182 bps as depicted in Figure 1. This spread, in turn, is being driven by the wide yield spread between the current coupon FNMA MBS and the UST 10-Year, which now lies 100 bps over its historical average of 83 bps for the same period.

RETROSPECTIVE CURRENT COUPON MBS MEASURES AND MODELS
Alex Levin

Andrew Davidson & Co., Inc.’s (AD&Co) has recently expanded its historically interpolated current coupon MBS analytical results to include an additional 30 or so measures: projected life prepayments, effective duration/convexity, key rate durations, and many others. This expanded database allows us to present interesting findings about how these measures change over time, despite steady MBS “moneyness”. Factors like yield curve slope, volatility level, and prepayment model revisions contribute to these dynamics.

INTRODUCING CLIMATE CONDITIONED LDM (ccLDM)
Joni Baker, Eknath Belbase

In recent articles, we have described Andrew Davidson & Co. Inc.’s (AD&Co) overall approach to incorporating climate risks into our analytical framework, and provided details on how our home-price appreciation (HPA) model will evolve within this framework. Our LoanDynamics Model (LDM) is the other main component that will account for climate risk: LDM handles the mortgage holder’s behavioral response to such risk by modifying the likelihood of prepaying or defaulting.

© 2023 Andrew Davidson & Co., Inc. All rights reserved. You must receive permission from marketing@ad-co.com prior to copying, displaying, distributing, publishing, reproducing, or retransmitting any of the content contained in The Pipeline.
This publication is believed to be reliable, but its accuracy, completeness, timeliness, and suitability for any purpose are not guaranteed. All opinions are subject to change without notice. Nothing in this publication constitutes (1) investment, legal, accounting, tax, or other professional advice or (2) any recommendation or solicitation to purchase, hold, sell, or otherwise deal in any investment. This publication has been prepared for general informational purposes, without consideration of the circumstances or objectives of any particular investor. Any reliance on the contents of this publication is at the reader’s sole risk. All investment is subject to numerous risks, known and unknown. Past performance is no guarantee of future results. For investment advice, seek a qualified investment professional. Note: An affiliate of Andrew Davidson & Co., Inc. engages in trading activities in securities that may be the same or similar to those discussed in this publication.

The Pipeline Archive

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Date:
09-2023
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183
Author:
Eknath Belbase
Date:
09-2023
Issue:
183
Author:
Mickey Storms
Date:
09-2023
Issue:
183
Author:
Alex Levin
Date:
09-2023
Issue:
183
Author:
Joni Baker
Eknath Belbase
Date:
06-2023
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182
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Eknath Belbase
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06-2023
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Alex Levin
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06-2023
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Richard Cooperstein
Kevin Lin
Michelle Stepien
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02-2023
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181
Author:
Eknath Belbase
Date:
02-2023
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181
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Tom Parrent
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02-2023
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181
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Alex Levin
Daniel Swanson
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02-2023
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181
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Eknath Belbase
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02-2023
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181
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Joni Baker
Richard Cooperstein
Sanjeeban Chatterjee
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12-2022
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180
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Eknath Belbase
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180
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Michelle Stepien
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180
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Sanjeeban Chatterjee
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11-2022
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179
Author:
Eknath Belbase
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11-2022
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179
Author:
Mickey Storms
Date:
11-2022
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179
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Alex Levin
Date:
09-2022
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178
Author:
Eknath Belbase
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09-2022
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178
Author:
Dan Szakallas
Date:
09-2022
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178
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Mickey Storms
Date:
09-2022
Issue:
178
Author:
Matteo Caracciolo-King
Alex Levin
Vivian Li
Date:
09-2022
Issue:
178
Author:
Matteo Caracciolo-King
Date:
07-2022
Issue:
177
Author:
Eknath Belbase
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07-2022
Issue:
177
Author:
Mickey Storms
Date:
07-2022
Issue:
177
Author:
Alex Levin
Date:
07-2022
Issue:
177
Author:
Connor Campbell
Date:
03-2022
Issue:
176
Author:
Eknath Belbase
Date:
03-2022
Issue:
176
Author:
Sanjeeban Chatterjee
Daniel Swanson
Richard Cooperstein
Date:
03-2022
Issue:
176
Author:
Alex Levin
Daniel Swanson
Date:
03-2021
Issue:
175
Author:
Eknath Belbase
Date:
03-2021
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175
Author:
Daniel Swanson
Date:
03-2021
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175
Author:
John Gao
Alex Levin
Daniel Swanson
Date:
03-2021
Issue:
175
Author:
Tom Parrent
Date:
12-2020
Issue:
174
Author:
Eknath Belbase
Date:
12-2020
Issue:
174
Author:
Alex Levin
Date:
12-2020
Issue:
174
Author:
Eknath Belbase
Date:
10-2020
Issue:
173
Author:
Eknath Belbase
Date:
10-2020
Issue:
173
Author:
Chris Widman
Date:
10-2020
Issue:
173
Author:
Alex Levin
Date:
08-2020
Issue:
172
Author:
Eknath Belbase
Date:
08-2020
Issue:
172
Author:
Daniel Swanson
Date:
08-2020
Issue:
172
Author:
Dan Szakallas
Date:
04-2020
Issue:
171
Author:
Eknath Belbase
Date:
04-2020
Issue:
171
Author:
Dan Szakallas
Kevin Atteson
Daniel Swanson
Date:
04-2020
Issue:
171
Author:
Chris Widman
Date:
04-2020
Issue:
171
Author:
Mickey Storms
Richard Cooperstein
Date:
04-2020
Issue:
171
Author:
Alex Levin
Date:
03-2020
Issue:
170
Author:
Eknath Belbase