Demand for the call protection coming from specified stories has increased considerably as we’ve had a sustained rally and the UMBS took center stage, worsening TBA pricing relative to Specifieds. As we’ve rallied, the demand for call protection has increased down the coupon stack as significant refi incentive is beginning to show up in 3.5 and 3.0 coupon production. We’ve seen 3.0s really come on over the past week with most stories showing pay-ups increasing over 50%, while higher coupons already offer substantial pay-ups and are not showing any signs of weakness.
On the other end of the spectrum, it’s no surprise to see High Balance spreads fade in 3.5 and 4.0 coupons, with 4.0s taking the biggest hit, where there is considerable refinance incentive available.
Spreads on 10/20 year have remained fairly stable over the past week, up about a tick across the board.