What is a Bond Coupon Rollover?
The Bond Coupon Rollover is an event that happens every month at which time the current month's coupon is closed out and any new loans are placed with next month's coupon.
On Friday, the monthly Bond Coupon Rollover happened, and we saw the price of bonds drop by almost 40 bps. However, despite this, there was no effect on mortgage rates because this was a paper drop in bond prices.
One way to help understand this is to think of each month's issuance in terms of the time they mature. A 30 year bond will mature in 360 months. These loans for the current previous month are packaged and sold to investors. Because new investors who are jumping into the market with new loans today effectively have 30 days from now to write loans on this months coupon, they have a 30 day extension relative to Friday's coupon. The new issuance will mature 360 months from now, one month longer than last month's issuance.
The charts show a sharp decline in bond prices from Friday, but again, this was due to the Bond Coupon Rollover, which has little or no effect on mortgage rates.
Read today's Market Update.