April 26, 2013
In March, prepays fell back below 6% for the first time this year, after being above 7% for the first two months of the year.
This decrease was caused by double-digit decreases in both defaults and voluntary prepayments.
As for the detail, overall prepayments fell 25.02% to 5.57% from 7.43% in February.
In comparing prepayment speeds for the first month of 2013 to the same period in 2012, we see that this year is running 25% ahead of 2012, 6.94% versus 5.57%.
As for the largest sector of the market, 20+ years to maturity, prepayment speeds fell by 23% to 4.92% from 6.37% in February.
Turning to the CPR breakdown, the default CPR fell by 18% to 2.07% from 2.53%. This reading is the lowest reading this year and reminiscent of 2012 levels.
Regarding voluntary prepayments, they fell for a second month in a row, decreasing another 29% to 3.49% from 4.90%. This represents the lowest reading this year.
Preliminary data for next month suggests that voluntary prepayments should mirror this month’s level. After two months of 5% readings, this fallback to the high-end of the range from 2012 is welcome news from a prepayment perspective. Specifically, preliminary data from Colson suggests another sub-6% reading, with a voluntary number in the 3%-4% range, very close to this month’s numbers.
Turning to the default/ voluntary prepayment breakdown, the Voluntary Prepay CPR (green line) fell to 3.49% from 4.90%, a 29% decrease. While the VCPR fell below 4%, the Default CPR (red line) moved lower by 18% to 2.07% from 2.53% the previous month.
Prepayment speeds fell in four out of six maturity categories. Decreases were seen, by order of magnitude, in the 10-13 sector (-43% to CPR 6.01%), 20+ (-23% to CPR 4.92%), <8 (-21% to CPR 7.76%) and 8-10 (-14% to CPR 6.29%).
Increases, also by order of magnitude, were seen in 16-20 (+44% to CPR 9.09%) and 13-16 (+14% to CPR 6.78%).
After two months of 7%+ prepayment speeds, we have returned to the sub-6% levels seen in late 2012 for this month, as well as next. As we enter the Spring, we’ll see if these lower levels will hold, or if the first two months of the year are a better barometer of 2013.
For further information on the terminology and concepts used in this article, please refer to the “Glossary and Definitions” at the end of the report.