July 21, 2014
By Bob Judge
Editor, CPR Report
Defaults rose significantly last month, but stayed below 2% for the ninth month in a row.
This continues the longest such stretch in our database, which goes back to 1999.
As for the detail, overall prepayments rose 25% to 8.38% from 6.65% in April. In comparing prepayment speeds for the first five months of 2014 to the same period in 2013, we see that this year is running 12.59% ahead of last year, 7.59% versus 6.74%.
As for the largest sector of the market, 20+ years to maturity, prepayment speeds rose by 32% to 8.48% from 6.42%.
Turning to the CPR breakdown, the default CPR increased by 27% to 1.79% while the voluntary prepayment CPR rose by 26% to 6.59%. After two months below VCPR 6%, we are back into the 6% to 7% range.
Preliminary data for next month suggests that prepayments will remain above 8% for yet another month.
Turning to our maturity buckets, prepayment speeds rose in five out of six categories.
Increases were seen, by order of magnitude, in the 8-10 year sector (+69% to CPR 12.28%), 16-20 (+52% to CPR 5.52%), 20+ (+32% to CPR 8.48%), <8 (+19% to CPR 13.21%) and 10- 13 (+16% to CPR 8.45%).
The lone decrease was seen in the 13-16 year maturity bucket, which fell by 67% to CPR 3.09% from CPR 9.44% the previous month.
Now that we have returned to the CPR 8% range after a short hiatus, I would expect us to spend most of 2014 right here.
It would seem that the days of sub-6% prepayment speeds are behind us.