NORGES BANK: MNI Norges Bank Review - Dec 25: Not In A Rush

• GBP1.125bln have been on offer.
• This leaves GBP23.000bln of the gilt in issue.

Weakness in crude oil futures has supported bonds over the last couple of hours or so, although pre-existing week-to-date highs in TY, Bund & gilt futures remain untouched.

• Our commodities team notes that oil has softened as the market digests signs of renewed efforts by the U.S. to strike a Ukraine peace deal, although caution that given failed previous attempts, a deal still seems a long way off.

Mortgage applications last week fully unwound what had been a strong refi-driven increase seen back in late October when rates fell to their lowest in over a year. Rates have only increased modestly in recent weeks whilst mortgage swap spreads have seen a narrowing trend barring a small widening in the latest week. 

• MBA composite applications fell a seasonally adjusted -5.2% last week, now fully unwinding a strong increase in late October with its largest single week decline since September.
• Refis led the latest drop (-7.3% after -3.4%) and are now at their lowest level since early September, whilst new purchase applications dipped after a previously strong increase (-2.3% after +5.8%).
• Levels relative to 2019 average for context: composite 66%, new purchases 65%, refis 67%.
• The 30Y conforming mortgage rate inched up another 3bps to 6.37% to continue a slow lift off the 6.30% from the week to Oct 24 being its lowest since Sep 2024.
• There was a minor widening in mortgage spreads but it doesn’t materially alter the trend of reasonable tightening in recent months.
• Specifically, the spread to 10Y swap rates ticked up 2bps to 269bps although last week’s 267bp had been a fresh low since Apr 2022. It compares to an average 285bp in Q1 and a rough range of 300 +/-5bp for some months after reciprocal tariff announcements in April prompted some additional caution in lending standards.