MBS Prepays May Slow This Year.(mortgage-backed securities, 2002)(Brief Article)(Statistical Data Included)

Mortgage-backed securities issuance and prepayments may begin to slow this year if expectations that the economy will eventually recover in 2002 pan out and continue to elevate the long-term rates driving the bulk of the mortgage market.

Robert Young, a director of mortgage research at Salomon Smith Barney, indicated in a report issued in conjunction with SSB's outlook for the fixed-income markets that he expects refinancing to be "sharply lower" in 2002.

This may cause issuance of some mortgage-related bonds to wane, Diane Vazza, Standard & Poor's head of global fixed income research, told listeners in a recent teleconference.

"In the U.S., issuance of (residential) MBS will show a deceleration of about 9% as a result of reduced refinancing and commercial MBS is going to basically remain flat," she said.

While this may mean a reduction in supply for MBS buyers, such a market environment has other advantages for investors, according to Mike Farrell, chairman and chief executive officer of Annaly Mortgage Management Inc., New York.

Mr. Farrell described this market environment as one that could be "lucrative" for both mortgage buyers and "people that own spread product in general," once it is established. He said his team's plan for 2002 is to continue pursuing a conservative approach when it comes to deploying capital and to continue basing Annaly's investment strategies on the shape of the yield curve spanning short- to long-term rates.

The company has been telling its investors that it expects, "on a macro level," to see a "prolonged steep yield curve in 2002 through 2003," ...